<PAGE>
File Number: 0-29174
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
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, 1997
LOGITECH INTERNATIONAL S.A.
(Exact name of Registrant as specified in its charter)
--------------
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)
--------------
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 Nasdaq National Market
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
--------------
The number of outstanding shares of each of the issuer's classes of capital or
common stock as of March 31, 1997 was 2,001,688 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
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Part I Page
- ------ ----
Item 1. Description of Business....................................................................................3
Item 2. Description of Property...................................................................................16
Item 3. Legal Proceedings.........................................................................................17
Item 4. Control of Registrant.....................................................................................18
Item 5. Nature of Trading Market..................................................................................19
Item 6. Exchange Controls and Other Limitations Affecting Security Holders........................................20
Item 7. Taxation..................................................................................................20
Item 8. Selected Financial Data...................................................................................22
Item 9. Management's Discussion and Analysis of Financial Condition and Results of Operations.....................24
Item 10. Directors and Officers of Registrant......................................................................30
Item 11. Compensation of Directors and Officers....................................................................32
Item 12. Options to Purchase Securities from Registrant or Subsidiaries............................................33
Item 13. Interest of Management in Certain Transactions............................................................33
Part II
- -------
Item 14. Description of Securities to be Registered................................................................33
Part III
- --------
Item 15. Defaults Upon Senior Securities...........................................................................33
Item 16. Changes in Securities and Changes in Security for Registered Securities...................................33
Part IV
- -------
Item 17. Financial Statements......................................................................................33
Item 18. Financial Statements......................................................................................33
Item 19. Financial Statements and Exhibits.........................................................................34
Signatures..........................................................................................................36
Consolidated Financial Statements..................................................................................F-1
</TABLE>
---------------
In this document, unless otherwise indicated, references to the "Company"
or "Logitech" are to Logitech International S.A., its consolidated subsidiaries
and predecessor entities.
HyperJump(TM), Logitech(R), the Logitech logo, Magellan(TM), MouseMan(R),
MouseMan(R) Cordless, MouseWare(R), PageScan(TM), PageScan Color(TM), ScanMan(R)
Color 2000, Senseware(R), SurfMan(TM), TrackMan(R) Marble(R), Wingman(R),
WingMan(R) Extreme(TM), and WingMan(R) Warrior(TM) are trademarks of the
Company. All other trademarks or trade names used in this document are the
property of their respective owners.
<PAGE>
ITEM 1. DESCRIPTION OF BUSINESS
The following discussion contains forward looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Predictions of future events are inherently
uncertain. Actual events could differ materially from those predicted in the
forward looking statements as a result of the risks set forth in the following
discussion, including the subsection "Additional Risk Factors That Could Affect
Operating Results" in this Item 1 and in Item 9 - Management's Discussion and
Analysis of Financial Condition and Results of Operations.
OVERVIEW
Logitech is a leader in the design, manufacture, and marketing of Senseware
peripherals: professional pointing devices including 2D, 3D, and cordless mice;
trackballs and touchpads; control devices for entertainment such as joysticks,
gamepads, and 3D game controllers; and imaging devices such as personal color
scanners and digital video cameras.
Over the past 15 years, Logitech has provided consumers with a natural and
intuitive bridge between the sensory rich analog world and the digital realm of
the personal computer ("PC"). The Company's products, known as Senseware
peripherals, provide user-centric solutions that are comfortable, easy to
install and easy to use, and are combined with integrated software for seamless
compatibility. Senseware peripherals are designed as an extension of a computer
user's natural senses, appealing to the way people want to work, communicate and
play, and allowing users to customize and personalize their computing
environment for a more natural man-machine interface.
The Company was founded in Switzerland in 1981 and operated through a
variety of related corporate entities until 1988. At that time, in connection
with the Company's initial public offering in Switzerland, it was reorganized as
a Swiss holding company, Logitech International S.A. The Company's operational
headquarters are located in Fremont, California, with engineering centers in
Fremont, Romanel-sur-Morges, Switzerland and Taiwan. Manufacturing operations
are located in China and Taiwan with distribution facilities in the United
States, Europe and Asia.
RECENT DEVELOPMENTS
On March 27, 1997, the Company consummated a public offering in the U.S. of
200,000 registered shares, represented by 2,000,000 American Depositary Shares
("ADSs"). Each ADS represents one-tenth of one registered share and is issued
pursuant to that certain Deposit Agreement dated March 27, 1997 (the "Deposit
Agreement") between the Company, The Bank of New York as Depositary (the
"Depositary"), and the registered and beneficial owners from time to time of
ADSs issued thereunder. On April 25, 1997, the Company sold an additional 30,000
registered shares pursuant to an option granted to the underwriters in the
offering to cover over-allotments.
INDUSTRY BACKGROUND
One of the primary challenges facing the PC industry has been to bridge the
digital world of computing and the analog world of computer users by creating a
natural man-machine interface. The growth in processing power, communications
bandwidth and digital content have created compelling reasons to purchase home
PCs, along with new challenges as users struggle to effectively input, access
and control the many forms of digital data in a simple and intuitive manner.
Despite advances in design and function, setting up and using a PC often
requires users to adapt their natural way of thinking and working to fit the
computer. For example, when attaching new devices to a PC, the user is
confronted with a limited number of ports, the need to ensure hardware and
software compatibility, and ultimately a workspace cluttered with wires and
cords. This contrasts with the setup and use of more widespread consumer
electronics devices which have gradually adapted to become more user-friendly.
The Company believes that as computer usage continues to become more widespread,
trends established in the consumer electronics market, such as brand identity,
affordability, ease-of-use and installation, as well as visual appeal, are
rapidly becoming important components in home computer purchase decisions.
Progressively more powerful microprocessors and increased computer memory
have greatly expanded the capabilities of the PC platform, allowing for the
development of increasingly dynamic and complex applications.
3
<PAGE>
The PC has evolved from a productivity tool for word processing and data
analysis to an affordable multimedia appliance capable of creating and
manipulating vast amounts of data, including graphics, sound and full motion
video. PC users today can play games in three dimensions, create virtual worlds,
edit and improve their home videos and push the limits of their imaginations
without ever writing a line of code.
As the power and flexibility of the PC has evolved, so has the ability to
communicate among PCs. Powerful PCs, capable of connecting their users to a wide
variety of digital information via the Internet, are becoming commonplace in
many households. At the same time, the definition of the PC is changing as
devices with integrated television and communications capabilities are blurring
the line between computer and consumer appliance. This convergence of
technologies is also expanding the functionality of common appliances, from the
television to the telephone, creating compelling reasons for individuals to
purchase and upgrade home computers. Accordingly, trends previously established
in the consumer market, such as brand identity, price, ease-of-use and
installation, as well as visual appeal, are rapidly becoming important
components in home computer purchase decisions.
However, the growth in processing power, communications bandwidth and
digital content have created new challenges as users struggle to effectively
input, access and control the many forms of digital data in a simple and
intuitive manner. As a result, despite the myriad of technological advances in
computing over the past 20 years, the personal computer continues to be limited
by one of its most fundamental problems, the lack of intuitive interaction
between man and machine.
THE LOGITECH SOLUTION
Logitech provides consumers with a natural and intuitive bridge between the
sensory rich analog world and the digital realm of the PC. The Company's
products, known as Senseware peripherals, provide user-centric solutions that
are comfortable, easy to install and easy to use, and are combined with
integrated software for seamless compatibility. The Company's products are often
the most frequent point of physical interaction between consumers and their
appliances. As such, the richness of the man-machine interface experience is an
important element of overall user satisfaction. Senseware peripherals are
designed to be an extension of a computer user's natural senses, appealing to
the way people want to work, communicate and play, and allowing users to
customize and personalize their computing environment for a more natural
interface between man and machine.
Over the past 15 years, the Company has established itself as a leading
designer, manufacturer and marketer of computer control devices. Building on
this leadership position, the Company capitalized on the growth in personal
computing by expanding its Senseware peripheral product lines. The Company
offers a wide range of control devices, from cordless mice to 3D game
controllers to remote controls. The Company's imaging solutions include sheetfed
and handheld color personal scanners, and color digital cameras. The Company has
continually focused on the improvement and refinement of Senseware peripherals
to enable the expansion of PC functions, broadening the bridge between human
analog inputs and the digital realm of the computer.
Logitech's Senseware peripherals have long been at the forefront of
technological innovation. In control devices, the Company pioneered optical
sensing technology with the opto-mechanical mouse in 1982 and cordless
connectivity with the cordless mouse in 1984. The Company is one of only a few
manufacturers of optical trackballs in the world. In imaging solutions, the
Company was among the first to market the digital still camera in 1991, the
full-color handheld scanner in 1992, and the personal color sheetfed scanner in
1995. In addition, recognizing the limitations of many connectivity methods, the
Company has continually embraced new connectivity standards, particularly those
that contribute to increased ease of use for users. For example, Logitech was
early to recognize the importance of the Universal Serial Bus ("USB"),
demonstrating the first working USB device at Comdex in Fall 1995, and continues
to devote significant product development resources to the migration of its
product offerings to the USB standard.
4
<PAGE>
The Company believes the following to be among its key competitive strengths:
o 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 six distinct
generations. Many of these technologies have applications across multiple
product offerings, allowing the Company to leverage its accumulated
technology investment.
o Retail Brand and Distribution. The Company believes the Logitech brand name
-----------------------------
and product designs are recognized worldwide as symbols of product quality,
innovative design and price performance. Furthermore, the Company believes
that in the consumer market, brand identity and brand awareness are
important components of the purchase decision. Logitech's strong brand has
enabled it to build an extensive retail distribution network and obtain
critical shelf space. The Company believes that as the PC market becomes
more competitive, access to shelf space will increasingly become a
competitive factor.
o Volume Manufacturing Capability. The Company believes its established
-------------------------------
manufacturing capabilities are a significant competitive advantage. The
Company has been building its Far East manufacturing presence for more than
ten years and its ISO 9000-certified manufacturing facilities are currently
producing over 30 million units per year. As a result, Logitech has been
able to maintain strict 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.
o Strong OEM Relationships. The Company has long-established relationships
------------------------
with large Original Equipment Manufacturer ("OEM") customers and currently
sells to 17 of the 20 largest PC manufacturers in the world. Logitech is
often the primary supplier for these products and its engineering and
design staff works collaboratively with OEM customers on the design of
future products. The Company believes its OEM relationships provide it with
valuable insight into the future of the computer marketplace and
technological trends.
o Industrial Design Excellence. The Company believes that its ability to
----------------------------
produce world-class, user-centric, industrial designs through the
integration of in-house and external design resources sets it apart from
its competitors. The Company has received many awards for product design
and innovation, including best in the equipment category in 1995 from ID
magazine for its video camera, awards from the SMAU show in Italy, IDEA
awards from Business Week magazine and IF awards at CeBit shows in Hanover,
Germany.
o Global Resources. Logitech is an internationally-minded company capable of
----------------
drawing upon the strengths of its various cultures and locations. With
centers in Europe, the United States and Asia, 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 be the leading provider of man-machine interface
solutions for PCs and other multimedia devices in the growing mass consumer
market. As computing, communications and consumer electronics continue to
converge to create new product categories, Logitech intends to provide
affordable, user-friendly interfaces enabling consumers to harness the full
power of computing. The Company intends to meet its objectives by capitalizing
on its technological innovations, brand image, customer relationships and
manufacturing capabilities. The Company's strategy includes the following key
elements:
Develop Products for Mass Consumer Markets
------------------------------------------
According to International Data Corporation ("IDC"), as of December 1996
approximately 35% of all households in the U.S. contained PCs, and the home PC
market is expected to be one of the fastest growing segments in the PC market.
The Company expects that in addition to an increased number of home computers,
there will be an increase in the number of add-on devices per PC. Logitech is
focusing its development efforts on home PC users in order to address the widest
possible market. The Company intends to use its established brand
5
<PAGE>
recognition for user-centric design, retail and OEM distribution channels,
and volume manufacturing capabilities to increase its market penetration.
Enhance and Leverage the Logitech Brand
---------------------------------------
Logitech's millions of branded devices in use on desktops worldwide
reinforce familiarity and brand recognition with consumers. In addition to its
retail brand identity and awareness efforts, the Company is pursuing a
co-branding strategy with OEM customers and introduced the first such co-branded
product in collaboration with Toshiba in the first calendar quarter of 1997. In
addition, recognizing the central role of its logo in creating visual brand
awareness, the Company introduced an updated version of its logo during the same
period. The Company plans to continue to invest in and protect its brand
identity while expanding brand awareness.
Leverage OEM and Retail Channels
--------------------------------
The Company's OEM channel, which offers economies of scale and high quality
production, is complementary to its retail channel which allows the Company to
develop innovative product designs and build brand awareness. The Company's OEM
customers include 17 of the 20 largest PC manufacturers worldwide, while its
retail sales channel utilizes a worldwide network of distributors and major
retail chains. In satisfying high volume OEM orders, the Company has been able
to improve product quality while lowering product costs in both its OEM and
retail lines. Products initially developed for retail customers, such as
cordless mice, are now penetrating OEM accounts. Likewise, products first
developed for OEMs, such as digital video cameras and remote controls, are now
being developed for retail markets. The Company intends to continue leveraging
its complementary relationships with both the OEM and retail channels to provide
innovative, cost-competitive products and build brand awareness.
Continue Technological Innovation
---------------------------------
The Company believes that its history of bringing innovative products to
market has played an important part in its growth and position in the
marketplace. With a combination of skills, including the ability to spot
emerging trends, the technological expertise to capitalize on these trends and
the capability to commercialize and manufacture new products in volume, the
Company believes it is able to bring new technologies to market in advance of
its competitors. By leveraging these skills, the Company intends to continue
enhancing the functionality of existing product lines while pioneering new
product categories to address emerging consumer needs.
Provide USB and Cordless Solutions
----------------------------------
The Company believes that consumers will continue to demand products that
are easier to install with minimal clutter. For example, Logitech believes that
the emerging USB interface standard will change the way new devices interface
with PCs. USB is designed to enable true "plug-and-play" attachment for up to
127 devices to a single port, with a high-speed bus (over 1000 times the speed
of a conventional 9600 Baud serial port) and the ability to provide power to
attached devices, ultimately eliminating the power cord. The Company has made a
major commitment to developing products which conform to the USB standard and
believes it was the first company in the world to develop a working USB product.
The Company intends to provide USB compatibility in all of its product lines.
Logitech was also early to recognize the benefits of cordless connectivity,
introducing the cordless mouse in 1984. The Company believes the widespread use
of cordless remote control devices in consumer electronics products, such as
televisions, stereos and VCRs, has created a generation of consumers accustomed
to interacting with these appliances at a distance. The Company further believes
that as the computer continues to converge with consumer electronics products,
users will require the ability to interact with the PC in the same natural,
intuitive manner as these other devices. To encourage more rapid adoption of
cordless products, the Company intends to promote cordless connectivity
standards and protocols. Logitech intends to continue investing significant
product development resources in cordless technologies for the foreseeable
future.
6
<PAGE>
PRODUCTS
Logitech's Senseware product lines include control devices and imaging
solutions. Senseware products are designed as integrated hardware and software
solutions to provide a seamless interface between man and machine.
Approximately 80% of the Company's net sales for fiscal 1997 were derived
from the sale of control devices. Control devices are expected to continue to
account for the majority of net sales for the foreseeable future. To date, sales
of the Company's imaging solution products have been relatively limited and have
not yet achieved significant market acceptance. Many of the announced
competitors for one or more of these products have stronger brand names, more
extensive retail channel coverage, deeper consumer knowledge and experience, and
greater resources. Net sales and gross margins of the Company's imaging solution
products may be less predictable or less favorable than its experience with
control devices. In addition, the Company has limited experience in the design,
development, manufacture, marketing and support of these products. These
products are based on different technologies and additional manufacturing
processes, and there can be no assurance that the Company will be successful in
this new market.
The Company's products include:
Control Devices
---------------
From its roots in computer mice, the Company's control devices have
expanded to include a wide range of products such as trackballs and touchpads,
joysticks, 3D game controllers and remote controls. The Company shipped its one
hundred millionth mouse in April 1996. The Company's control device product
families are summarized below.
o Mice. Logitech offers many varieties of mice, sold through both OEM and
----
retail channels. For example, the MouseMan retail mouse is designed with
curves, slopes and buttons to better fit the user's hand while the MouseMan
Cordless also incorporates a radio link to transmit data to the host
computer. All retail models are bundled with MouseWare software, enabling
users to program mouse buttons for specific tasks and to personalize other
mouse operations. The MouseMan 96 mouse is also bundled with Hyperjump, a
software tool optimized for operations within Windows 95 (e.g. scrolling,
closing, resizing). In addition to retail mouse models, the Company also
sells mice, such as the S34 mouse, designed specifically for OEM customers.
o Trackballs. Logitech's trackballs are designed as standalone retail
----------
products and as components intended to be integrated by OEMs into notebook
computers or desktop keyboards. The Company's retail trackballs are
available in a variety of form factors with mechanical or optical sensors
and corded or cordless versions. For example, TrackMan Marble incorporates
a patented optical sensing technology for reliable operation without having
to regularly clean grease or dust buildups. The new SurfMan is a cordless,
handheld trackball device engineered for surfing the World Wide Web with
added software features to use web browsers more effectively.
o 6DOF Controller. The Company's Magellan 6DOF controller is used primarily
---------------
for three-dimensional computer-aided design applications and permits
rotation around any of three axes for six degrees of freedom. In addition,
with the increased processing power of today's PCs, a number of game
developers are developing games which require up to six degrees of freedom
to play. The Company intends to extend the functionality of its Magellan
6DOF controller to accommodate these new game applications as well as
emerging Internet applications.
o Touchpads. Logitech's touchpads, introduced in the summer of 1996, are
---------
designed to be integrated by OEMs into notebook computers and desktop
keyboards. The Company's touchpad incorporates proprietary technology that
allows the user to control the cursor through finger movement on the
touchpad and the replication of mouse button functions with the use of an
additional finger.
o Joysticks. Logitech offers WingMan, WingMan Extreme, and WingMan Extreme
---------
Digital joysticks for air combat, adventure, flight simulator, racing and
other games. Each has a distinctive industrial design with a sculpted grip
to fit the user's hand.
o 3D Game Controllers. Logitech's WingMan Warrior 3D game controller,
-------------------
introduced in September 1996, is the first of a new category of two-handed
entertainment devices designed for 3D action games like Doom and
7
<PAGE>
Quake. The right hand side of the console is similar to the WingMan Extreme
joystick, and the left hand side has a spin control knob and a throttle
control. The Company believes that two-handed operation is more natural,
resulting in more intuitive game play and precision in 3D game
environments. Using technology originally developed to manipulate robots
during NASA space missions, CyberMan 2 provides freedom of control in any
direction, responding to smooth, natural movement of the right hand and
fingertp commands on the left.
o Gamepads. Logitech gamepads are designed with features similar to those
--------
used with dedicated game platforms, and are primarily for use with sport
and fighting style games such as NHL Hockey and Mortal Combat. Logitech
currently offers corded and cordless versions of its gamepads.
o Remote Controls. Logitech remote controls are designed for OEMs to bundle
---------------
with PCs that contain integrated TV tuners, CD-ROM drives, answering
machines and other consumer features. When bundled with the appropriate
Logitech software package, users can control all TV functions, surf the
World Wide Web and make business presentations, all with the same remote
control. In addition, Logitech has developed a protocol which allows
multiple cordless devices, e.g. remote control and mouse, to be used
interchangeably with the same host computer.
Imaging Solutions
-----------------
The Company's imaging solution products include personal scanners and
digital video cameras. Personal scanners, available in sheetfed and handheld
models, enable paper-based information, such as images and text, to be input to
PCs and thereafter to be accessed, edited and communicated in digital form.
Personal scanners are currently sold primarily through retail channels. The
Company's digital video cameras are primarily sold to OEMs and enable video
conferencing and video telephony over networks.
o Sheetfed Scanners. In September 1995, Logitech introduced its compact
-----------------
color sheetfed scanner, the PageScan Color for Windows 3.1, establishing a
new product category. This product is capable of scanning both in sheetfed
mode and in detached mode for bound materials. The Company's most recent
generation of color sheetfed scanners adds improved resolution, support for
Windows 95 and an automatic document feeder. A Logitech sheetfed scanner
comes bundled with multiple software applications accessed through a user-
friendly control panel, enabling users to scan text and images with a
single click. Through alliances with Adobe Systems, Inc. and Xerox
Corporation, the Company's scanners include PhotoDeluxe, one of the world's
most popular photo editing software packages, as well as optical character
recognition software. In addition, the Company continues to refine its
sheetfed scanners to accommodate emerging Internet applications. A PC
equipped with a Logitech PageScan Color scanner, and combined with a modem
and a printer, is transformed into a multi-function document manager, fax,
and copier.
o Handheld Scanners. Logitech currently offers its ScanMan Color 2000
-----------------
handheld scanner bundled with Adobe's PhotoDeluxe for editing color images,
as well as software to automatically match multiple scans of the same page
into a single image. The Company anticipates that as its sheetfed scanners
continue to add features and functionality at lower price points, sales of
the Company's sheetfed scanners will supplant sales of the Company's
handheld scanners by the end of fiscal 1998.
o Digital Video Cameras. The Company's digital video cameras are sold to
---------------------
OEMs and bundled with personal computers and workstations. For example, the
Company currently sells its digital video camera to Silicon Graphics, Inc.
for bundling with Silicon Graphics' "Indy" workstation. These cameras
enable video conferencing, videomail and still photography.
TECHNOLOGY
Logitech Senseware products are sophisticated systems that combine multiple
engineering disciplines--mechanical, optical, electrical, software--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
8
<PAGE>
computer; and a suite of driver, utility and user interface software modules.
Approximately one-third of Logitech's engineering resources are devoted to
software development. The Company believes these software modules complete a
seamless user-centric solution for information input, access and control.
Logitech's products incorporate the following principal technologies:
o Sensors and Encoders. The Company's sensors and encoders transform
--------------------
analog motion and images into electrical signals. For example, Logitech's
patented TrackMan Marble product utilizes an optical trackball sensor,
greatly improving trackball accuracy and durability. Trackball motion
results in a shift in the speckled pattern imprinted on the ball, which is
detected by an optical sensing system. Similarly, Logitech's personal
scanners and digital cameras utilize optical sensors to detect colors,
shapes and other image attributes and convert these attributes into
electrical signals. Through a variety of sophisticated sensing and encoding
techniques, Logitech has been able to reduce the number of circuits
required in its mouse products, thereby lowering product manufacturing
costs and improving reliability.
o 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 color video cameras, signal
processing algorithms are used for color extraction, image enhancement and
data compression.
o Application Specific Integrated Circuit Design. The Company has developed
----------------------------------------------
in-house expertise in the design and testing of custom integrated circuits.
In particular, Logitech has dedicated design professionals skilled in the
development of mixed mode analog and digital circuits on one or multiple
chips. For example, Logitech's touchpad pointing device senses changes in
electrical capacitance, which is processed in both analog and digital forms
on a single custom ASIC. Similarly, custom circuits in the Company's video
camera are used to enhance video images. The Company owns a library of ASIC
designs, which can be adapted for use in multiple Senseware products.
o Power Management. The Company's products utilize advanced power management
----------------
including techniques pioneered by Swiss watch manufacturers. Cables
connected to separate power supplies are inconvenient in the case of
desktop products such as pointing devices or personal scanners, and
impossible in the case of cordless devices such as remote controls.
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 will be particularly important for
the next generation of USB products.
o Radio Frequency Design. The Company has been at the forefront in the
----------------------
development and supply of low band-width, low power radio frequency ("RF")
technology for use over short distances. The Company is focusing its
current cordless development efforts primarily on RF devices, but has also
developed infrared products. As the functionality of the PC converges with
televisions, VCRs and other consumer devices, Logitech believes consumers
will demand the ability to control their PC from a distance. Logitech's
remote controls enable consumers to control PCs equipped with TV tuners,
CD-ROM drives, answering machines and other consumer features. The Company
is also developing a protocol which will allow multiple cordless devices to
be used interchangeably.
o Software Design. The Company believes that software plays an important
---------------
role in enhancing the functionality of its products. Accordingly, Logitech
has consistently emphasized the design and integration of user-friendly
software applications across its control device and imaging solution
product lines. Moreover, the Company has realized cost reductions in the
hardware component of certain products by improving the corresponding
software. Currently, the Company is designing and developing software for
future USB and RF products.
RESEARCH AND DEVELOPMENT
The Company believes that continued investment in product research and
development is critical to its continued success. The Company's international
structure provides certain advantages and synergies to its overall product
development efforts. Logitech's product research and development activities are
conducted at three engineering centers located in Fremont, California,
Romanel-sur-Morges, Switzerland, and Hsinchu, Taiwan. As of March 31, 1997, the
Company employed a total of 187 employees in research and development,
approximately one-third of whom were devoted to software development.
9
<PAGE>
The location of the Company's Fremont facilities allows the Company access
to Silicon Valley's talent pool, particularly important in the development of
software and imaging 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.
Logitech's Swiss engineering center provides the Company with advanced
power management, sensing, encoding and RF expertise. 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. It has also been able to
obtain Swiss government grants for certain research and development projects.
Through its facilities in Taiwan, the Company has established access to key
Asian markets, engineering resources and high-tech manufacturing. Taiwan is a
world leader in the manufacture of semiconductors, notebook computers, scanners,
monitors and related products, and possesses a concentration of firms that
specialize in advanced plastic injection molding and tooling. Moreover, Logitech
expects the common language of Taiwan and China to facilitate the transfers of
products from its 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 USB
capabilities. Within the control device product line, development efforts are
directed at enhancements in the functionality of such products, including an
integrated roller mechanism for use with Office 97, 3D mice and 6DOF game
controllers. In the imaging solution product line, the Company is working on
smaller form factor, higher image quality, improved GUIs and increased speed for
its scanners. Logitech is currently working on a second generation version of
its digital camera with USB connectivity to capitalize on both OEM and retail
opportunities created by the convergence of computing and communications. 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. There can be no assurance that the
Company will be able to identify, develop, manufacture, market, sell, or support
new products and enhancements successfully, that new products or enhancements
will achieve market acceptance, or that the Company will be able to respond
effectively to technology changes, emerging industry standards or product
announcements by competitors. Failure by the Company to anticipate or respond
adequately to changing market conditions, or significant delays in product
development or introduction, could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company's research and development expenses for fiscal years 1997,
1996 and 1995 were $26.5 million, $20.7 million, and $18.7 million,
respectively. 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 other
pointing devices and personal scanners are consumer, small office and home
office ("SoHo"), and, through its OEM customers, corporate. The primary end-user
market for Logitech entertainment devices, such as joysticks and gamepads, is
consumers. The Company expects the primary end-user markets for its digital
video cameras to develop initially among SoHo users and corporate buyers and
eventually among 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. 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
10
<PAGE>
language manuals, packaging, software diskettes and power plugs. Substantially
all of the Company's products are manufactured at its facilities in China and
Taiwan. As a result, a significant portion of its inventory may, at any point in
time, be in transit to distribution centers.
Products sold to OEMs are generally re-sold to end-users bundled with new
PCs. Products sold through retail channels typically are re-sold to end-users
who already own PCs. Consequently, retail channel sales are more dependent on
the size of the installed base of PCs and to seasonal retail demand trends than
to shipments of new PCs.
Logitech sells to large OEM customers through a direct sales force and
supports small OEM customers through distributors. Of the 20 largest PC
manufacturers worldwide according to IDC, 17 are Logitech customers. These OEMs
include:
Acer Technologies, Inc. Micron Computers, Inc.
Apple Computer, Inc. NEC Corporation
AST Research, Inc. Ing. C. Olivetti and Co. S.p.A.
Compaq Computer Corp. Packard-Bell
Dell Computer Corp. Samsung Electronics Company, Ltd.
Digital Equipment Corporation Siemens Nixdorf Information
Fujitsu ICL, Inc. Systems, Inc.
Hewlett-Packard Co. Toshiba Corp.
International Business Machines Corp. Vobis Microcomputer AG
In retail channels, Logitech's direct sales force sells to distributors and
resellers. Its distributor customers typically resell products to retailers and
small OEMs with which Logitech does not have a direct relationship. These
distributors in the U.S. include Ingram Micro Inc., Merisel, Inc. and Tech Data
Corporation, and in Europe include 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., Wal-Mart Stores, Inc., Office Depot, Inc. and CompUSA, Inc. and in
Europe include Carrefour and Dixons Stores Group PLC. No customer accounts for
more than 10% of the Company's net sales.
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, 1997, two customers each represented 5.5% and 8.5% 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 default in the payment of its receivables owed to the Company,
the Company's operating results could be materially adversely affected.
The Company maintains an office in Tokyo, Japan with approximately ten
employees who service OEM accounts in Japan and oversee Japanese retail
accounts. Logitech also maintains sales offices in: North Sydney, Australia;
Mississauga, Ontario, Canada; Beijing and Shanghai, China; Paris, France;
Germering, Germany; Cork, Ireland; Agrate Brianza, Milano, Italy; Maarssen, the
Netherlands; Barcelona, Spain; Baden-Dattwil, Switzerland; Dorking, England;
Singapore; Taipei, Taiwan; and throughout the United States, including Newport
Beach and Redondo Beach, California; North Miami, Florida; Plymouth,
Massachusetts; Minnetonka, Minnesota; Norristown, Pennsylvania; and Austin,
Texas. The Company also has sales representatives located in Tamsweg, Austria;
Birkerod, Denmark; and Stockholm, Sweden.
Net sales in fiscal 1997 in Europe, the Far East and North America were
$151.6 million, $64.1 million, and $197.9 million, respectively. Net sales in
fiscal 1996 in Europe, the Far East and North America were $129.9 million,
$60.0 million and $165.1 million respectively. Net sales in fiscal 1995 in
Europe, the Far East and North America were $117.0 million, $46.5 million, and
$139.3 million, respectively.
11
<PAGE>
CUSTOMER SERVICE AND TECHNICAL SUPPORT
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 and facsimile. The Company also maintains customer service through its
World Wide Web and CompuServe sites. These sites are 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 three 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. In fiscal 1995, the Company underwent a major
restructuring in its manufacturing operations to reduce per unit production
costs and significantly increase output capabilities. Logitech's high-volume
manufacturing is now located in Suzhou, China, where labor and overhead costs
are significantly lower than in North America, Europe and Taiwan. When the
Company moved its volume manufacturing from Taiwan to Suzhou, it also encouraged
its Taiwanese suppliers to establish a manufacturing presence in the proximity
of the Suzhou facility, helping to ensure consistent and reliable supply of
quality components. The Suzhou facility was designed to allow significant
production growth as well as flexibility in responding to changing demands for
the Company's Senseware products. The Company continues to focus on improving
the efficiency at the Suzhou facility, including a more efficient
reconfiguration of the floor plan, the introduction of a "just-in-time"
inventory control system and 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 joysticks and
scanners, 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.
Certain key components used in the manufacture of the Company's products,
as well as certain products, are currently purchased by the Company from single
or limited sources that specialize in such components or products. At present,
single-sourced components include certain of the Company's ASICs, certain other
integrated circuits and components, and balls used in certain of the Company's
trackballs. The Company generally does not have long-term agreements with its
single or limited sources of supply. Lead times for materials and components
ordered by the Company or its 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 the Company has experienced supply
shortages and fluctuation in component prices. Shortages or interruptions in the
supply of components or subcontracted products, or the inability of the Company
to procure these components or products from alternate sources at acceptable
prices in a timely manner, could have a material adverse effect upon the
Company's business, financial condition and results of operations.
EMPLOYEES
As of March 31, 1997, Logitech had a total of 2,995 permanent and temporary
employees, of whom 187 were in research and development, 2,200 were in
manufacturing and distribution, 287 were in marketing, sales and support, and
321 were in administration. Of the total number of employees, 410 were in North
America, 204 were in
12
<PAGE>
Europe, and 2,381 were in Asia. 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.
The Company's success depends to a significant degree on the continued
contributions of the Company's management and other key design, development,
manufacturing, marketing and sales personnel. The loss of any of such personnel
could have a material adverse effect on the Company's business, financial
condition and results of operations. Certain of the Company's senior management
and other key personnel have recently joined the Company. The Company's success
will depend in part on successful assimilation of these and other new employees.
Assimilation and retention of personnel may be made more difficult by the fact
that the Company's 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, the Company
believes that its future success will depend on its ability to attract and
retain highly skilled managerial, engineering, operations, marketing and sales
personnel, competition for whom is intense. There can be no assurance that the
Company will be successful in attracting and retaining such personnel, and the
failure to attract and retain key personnel could have a material adverse effect
on the Company's business, financial condition, and results of operations.
COMPETITION
The Company's business is characterized by intense competition, a trend of
declining average selling prices and performance enhancements of competing
products. The Company expects that competition will continue to be intense and
may increase from current or future competitors. Logitech believes that the
principal competitive factors include the price, performance, user-centric
design, ease-of-use, quality and timeliness of products, as well as the
responsiveness, capacity, technical abilities, established customer
relationships, retail shelf space, advertising and promotion programs, and
brands of manufacturers.
In sales of control devices, the Company competes primarily with Alps,
Kensington/Advanced Gravis, KYE/Mouse Systems, Microsoft, Mitsumi, Primax and
Synaptics. In sales of imaging solutions, competitors include Connectix,
Hewlett-Packard, Microtek, Mustek, Philips, Plustek, Sharp, Storm Technology,
Umax and Visioneer.
Many of the Company's 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 the Company. In this regard, Microsoft is the Company's
chief competitor in the market for control devices. Microsoft is also a leading
producer of operating systems and applications with which the Company's control
devices are designed to operate. As a result of its position, Microsoft may be
able to make improvements in the functionality of its control devices to
correspond with ongoing modifications and enhancements to its operating systems
and software applications in advance of the Company. In certain instances, this
ability may 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 the Company is not able to offer.
Certain of the Company's competitors may also have patents or intellectual
property rights which provide them with an advantage. As a result, these
competitors may be able to respond more effectively to new or emerging
technologies and changes in customer requirements. Consequently, the Company
expects to continue to experience increased competition and significant price
reductions, which could result in decreased gross margin, loss of market share
and lack of acceptance of the Company's products. In the event of significant
price competition in the market for the Company's products, the Company would be
required to decrease costs at least proportionately to any price decreases in
order to maintain its 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.
There can be no assurance that the Company will be able to compete successfully
in the future or that competition will not have a material adverse effect on the
Company's business, financial condition and results of operations.
13
<PAGE>
ADDITIONAL RISK FACTORS THAT COULD AFFECT OPERATING RESULTS
In addition to the other factors identified in this Annual Report on Form
20-F, including the risks set forth in the above discussion and in Item 9 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations, the following risk factors could materially and adversely affect the
Company's future operating results, and could cause actual events to differ
materially from those predicted in the Company's forwarding looking statements
relating to its business.
POTENTIAL FLUCTUATIONS IN FUTURE OPERATING RESULTS; SEASONALITY
The Company's 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 the Company and its competitors and their acceptance by the
market; the impact of competition on the Company's average selling prices and
operating expenses; the availability and pricing of components for the Company's
products; inventory levels at the Company or in the distribution channels;
changes in laws or regulations; 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; fluctuations in exchange rates; changes in the
Company's strategy; changes in personnel; the performance of the Company's
suppliers and third-patty product manufacturers; the availability of key
components; and general economic conditions. Many of these factors are beyond
the Company's control. In addition, due to the short product life cycles
inherent in the Company's markets, the Company's failure to introduce new,
competitive products consistently and in a timely manner would adversely affect
results of operations for one or more product cycles.
The volume and timing of orders received during a quarter are difficult to
forecast. Customers generally order on an as-needed basis. Accordingly, the
Company has 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, the Company 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 the Company's products are
manufactured in Asia, and the Company relies 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 the Company's 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 Company's retail sales are seasonal. Net sales are typically higher
during the Company's third fiscal quarter, due primarily to the increased demand
for the Company's products during the year-end holiday buying season, and to a
lesser extent in the fourth fiscal quarter. Net sales in the first and second
quarters can vary significantly as a result of new product introductions and
other factors.
As a result, the Company believes that quarter-to-quarter comparisons of
its results of operations should not be relied upon as indications of future
performance. In addition, due to the foregoing factors, it is possible that in
some future quarter the Company's operating results may be below the
expectations of public market analysts and investors. In such event, the price
of the Company's ADSs and registered shares would likely be materially and
adversely affected. The Company's prospects must be considered in light of the
risks, expenses and difficulties frequently encountered by technology companies
participating in rapidly evolving markets. There can be no assurance that the
Company will be successful in addressing these concerns.
DISTRIBUTION
The Company sells its products through a domestic and international network
of distributors, resellers, and OEM customers, and the Company's success is
dependent on the continued viability and financial stability of its customer
base. 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. The Company's distributor and reseller customers generally offer
products of several different companies, including products competitive with the
Company's products. Accordingly, there is a risk that these
14
<PAGE>
distributors and resellers may give higher priority, including greater retail
shelf space, to products of other suppliers, and may reduce their efforts in
selling the Company's products. 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.
PRODUCT RETURN RISKS
Like other manufacturers of consumer products, the Company is exposed to
the risk of product returns, either through the exercise by customers of
contractual return rights or as a result of the Company's assistance in
balancing inventories. In addition the Company offers price protection to its
distributors and retailers. A portion of the Company's net sales may result in
increased inventory at its distributors and resellers. As a result, historical
net sales may not be indicative of future net sales. Overstocking by Logitech's
distributors and retailers may lead to higher than normal returns. The short
product life cycles of certain of the Company's 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. Although Logitech believes that it has provided
adequate allowances for projected returns, from time to time it has experienced
return levels in excess of its accruals and no assurance can be given that such
accruals will be sufficient for actual returns in future periods. In addition,
there can be no assurance that the accruals for price protection will be
sufficient, or that any future price changes will not have a material adverse
effect on the Company's results of operations. See "Management's Discussion and
Analysis of Financial Conditions and Results of Operations" and "Description
of Business - Customer Service and Technical Support".
PROPRIETARY RIGHTS
The Company's future success depends in part on its proprietary technology,
technical know-how and other intellectual property. The Company relies 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 its intellectual property.
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. In addition, unauthorized parties may
attempt to copy aspects of the Company's products or to obtain and use
information that the Company regards as proprietary. Any of these events could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Legal Proceedings."
The Company also relies on certain technologies that it obtains 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.
RAPID TECHNOLOGICAL CHANGE
The market for the Company's products is characterized by rapidly changing
technology and frequent new product introductions. The Company's success will
depend to a substantial degree on its 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
15
<PAGE>
market trends. There can be no assurance that the Company will be able to
identify, develop, manufacture, market, sell, or support new products and
enhancements successfully, that new products or enhancements will achieve market
acceptance, or that the Company will be able to respond effectively to
technology changes, emerging industry standards or product announcements by
competitors. New product announcements by the Company could cause its customers
to defer purchases of existing products or cause distributors to request price
protection credits or stock rotations. Any of these events could have a material
adverse effect on the Company's business, financial condition and results of
operations.
CONCENTRATION OF OPERATIONS IN CHINA AND TAIWAN
Substantially all of the Company's manufacturing operations are located in
Suzhou, China and Hsinchu, Taiwan. These operations could be severely impacted
by national or regional 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 continues
to evolve and the Company expects that differences in interpretation and
enforcement will continue in the foreseeable future. In addition, the Company's
Chinese employees in Suzhou are subject to a number of government regulations
regarding employment practices and customs that are fundamentally different in
certain respects from those in the United States and Europe. The Suzhou facility
is managed by several key Taiwanese expatriate employees of the Company. The
loss of such employees, either voluntarily or because of a deterioration in
relations between China and Taiwan, may have a material adverse effect on the
Company's Suzhou manufacturing operations.
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. The Company has not previously paid any such VAT on its
exported Chinese manufactured products. The Company is in discussion with
Chinese officials and has been assured that, notwithstanding statements made by
tax authorities, the VAT would not be applied to the Company. The Company
therefore believes this matter will not have a material adverse effect on the
Company's results of operations. Were the VAT to be applied to the Company, the
Company could incur a significant charge to operations, as well as an increase
in its cost of goods sold. As a result, the Company would seek to mitigate the
future effect by reorganizing its operations in China. There can be no assurance
that any application of the VAT to the Company would not have a material adverse
effect on the Company's current or future results of operations, or that the
Company's efforts to mitigate any impact of the VAT would be successful. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Overview."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
Logitech transacts a substantial portion of its business outside the United
States. There are certain risks inherent to doing business in international
markets, including tariffs, customs, duties and other trade barriers,
difficulties in staffing and managing foreign operations, problems in collecting
accounts receivable, longer accounts receivable payment cycles, political
instability, expropriation, nationalization and other political risks, foreign
exchange controls, technology export and import restrictions or prohibitions,
delays from customs brokers or government agencies, seasonal reductions in
business activity, subjection to multiple taxation regimes and potentially
adverse tax consequences, any of which could adversely impact the success of the
Company's international operations and, in turn, have a material adverse effect
on the Company's business, financial condition and results of operations.
ITEM 2. DESCRIPTION OF PROPERTY
Logitech's operational headquarters is located in Fremont, California in a
leased building comprising approximately 95,612 square feet. This facility is
also occupied by Logitech's Americas Area headquarters, including research and
development, product marketing, sales management, technical support and
administration. The Company's Fremont lease expires in March 2006.
16
<PAGE>
Logitech's Europe Area headquarters is in Romanel-sur-Morges, Switzerland.
This Company-owned facility comprises 28,590 square feet and includes research
and development, product marketing, sales management, technical support,
administration and certain Logitech group activities such as finance.
Logitech's Asia Area headquarters is in a Company-owned 111,977 square foot
facility in Hsinchu, Taiwan, and includes mechanical engineering, new product
launches, value-added manufacturing, process engineering, commodities
management, logistics, quality assurance, marketing, sales and administration.
The Hsinchu facility also serves as a distribution center for the Company.
Logitech's high volume manufacturing is located in a Company-owned 253,716
square foot building in Suzhou, China.
Logitech has major distribution centers in Union City, California,
Nijmegen, the Netherlands, and Hsinchu, Taiwan. The Union City facility is
86,496 square feet and is being leased by the Company until September 2000. The
distribution center in Nijmegen is comprised of approximately 7,147 square feet
and is subject to a lease due to expire in July 2000. The Company believes that
its current facilities will be adequate for its needs for the foreseeable
future.
ITEM 3. LEGAL PROCEEDINGS
Logitech Inc. is a defendant in certain lawsuits alleging the plaintiff
suffers from symptoms generally known as repetitive stress injury, allegedly
incurred while using mice sold by Logitech Inc. Logitech Inc. has denied these
claims and intends to defend the suits vigorously. These suits are similar to
those filed against other major suppliers of PCs and add-on devices. Ultimate
resolution of the various suits against Logitech Inc. may depend on results in
other suits of this nature. Should these claims be successful, the claims could
have a material adverse impact upon the financial position and results of
operations of the Company.
Pending and future litigation involving the Company, whether as plaintiff
or defendant, regardless of outcome, may result in substantial costs and
expenses to the Company and significant diversion of effort by the Company's
technical and management personnel. In addition, there can be no assurance that
litigation, either instituted by or against the Company, will not be necessary
to resolve issues that may arise from time to time in the future. Furthermore,
there can be no assurance that the Company's efforts to protect its intellectual
property through litigation will prevent duplication of the Company's technology
or products. Any such litigation could have a material adverse effect upon the
Company's business, financial condition or results of operations.
There has been substantial litigation in the technology industry regarding
rights to intellectual property, and the Company is subject to the risk of
claims against it for alleged infringement of the intellectual property rights
of others. In addition, the existence of any such claim by a third party may not
become known to the Company until well after it has committed significant
resources to the development of a potentially infringing product. From time to
time, the Company has received claims that it has infringed third parties'
intellectual property rights, and there is no assurance that third parties will
not claim infringement by the Company in the future. Any such claims, with or
without merit, could be time-consuming, result in costly litigation, cause
product shipment delays, or require the Company to enter into royalty or
licensing agreements, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations. There can be
no assurance that such royalty or licensing agreements, if required, will be
available on terms acceptable to the Company, or at all. For example, the
Company recently entered into an agreement with one of its competitors in the
personal scanner market to obtain a license to a U.S. patent covering aspects of
scanner design.
17
<PAGE>
ITEM 4. CONTROL OF REGISTRANT
The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Company's registered shares as of
June 1, 1997 by (i) each shareholder known by the Company to be the beneficial
owner of more than ten percent of the Company's registered shares and (ii) all
executive officers and directors as a group. To the knowledge of the Company, it
is not directly or indirectly owned or controlled by any corporation or by any
foreign government.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED(1) PERCENTAGE(2)
------------------------ ----------- ------------
<S> <C> <C>
Daniel Borel(3) 243,205 13.1%
Pierluigi Zappacosta 216,500 11.7%
All directors and executive officers as a group
(l4 persons) 508,097 27.4%
</TABLE>
(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 or warrants that
are currently exercisable or exercisable within 60 days after June 1, 1997
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 1,854,151 registered shares
issued and outstanding, which excludes 147,537 registered shares held in
treasury.
(3) Includes 121,700 registered shares registered in the name of Sylviane
Borel (Mr. Borel's wife), and 3,000 registered shares registered in the
name of Mr. Borel's children. Mr. Borel disclaims beneficial ownership of
the registered shares registered in the name of his wife.
18
<PAGE>
ITEM 5. NATURE OF TRADING MARKET
REGISTERED SHARES
The Company's registered shares are listed and principally traded on the
Swiss Exchange, where the prices are expressed in Swiss francs. The table below
presents, for the periods indicated, (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.
<TABLE>
<CAPTION>
PRICE PER REGISTERED SHARE
-------------------------------------
HIGH LOW HIGH LOW
---- ---- ---- ----
CHF CHF $ $
<S> <C> <C> <C> <C>
Fiscal 1995:
First quarter...................... 220.0 140.0 165.10 105.07
Second quarter..................... 151.0 100.0 117.37 77.73
Third quarter...................... 110.0 80.0 83.97 61.07
Fourth quarter..................... 104.0 81.0 91.79 71.49
Fiscal 1996:
First quarter...................... 86.0 73.0 74.69 63.40
Second quarter..................... 136.0 83.0 117.65 71.80
Third quarter...................... 128.0 111.0 110.92 96.19
Fourth quarter..................... 145.0 104.0 121.88 87.42
Fiscal 1997:
First quarter...................... 160.0 133.0 127.95 106.36
Second quarter..................... 159.0 126.0 126.64 100.36
Third quarter...................... 194.5 129.0 145.26 96.34
Fourth quarter..................... 299.0 190.5 207.92 132.48
</TABLE>
The Swiss Exchange is a private organization comprised of 53 members. As of
November 30, 1996, 215 Swiss companies and 223 foreign companies were 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 during a particular trading period.
AMERICAN DEPOSITARY SHARES
On March 27, 1997, the Company consummated a public offering in the U.S. of
200,000 registered shares, represented by 2,000,000 ADSs. Each ADS represents
one-tenth of one registered share. On April 25, 1997, the Company sold an
additional 30,000 registered shares pursuant to an option granted to the
underwriters in the offering to cover over-allotments. Based on information
available to the Company as of June 1, 1997, there were an aggregate of ten U.S.
resident shareholders holding 309,494 registered shares of the Company
(including ADSs representing such registered shares), constituting approximately
16.7% of the issued and outstanding registered shares as of such date. According
to the records of the Depositary, as of June 1, 1997 there were approximately
1,328,000 ADSs issued and outstanding under the Deposit Agreement, which ADSs
were held by one registered holder.
19
<PAGE>
The ADSs are traded on the Nasdaq National Market. The ADSs were initially
offered at $16.00 per ADS. The table below present the high and low closing
sales prices for ADSs on the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
Fiscal 1997:
Fourth quarter (March 27 to March 31)................ $ 16.25 $ 16.19
</TABLE>
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
As a Swiss corporation, the Company will be 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 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.
DIVIDEND POLICY
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. Although the Company has paid dividends in the
past, its board of directors has announced its intention not 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.
ITEM 7. 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 1951 Convention 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.
20
<PAGE>
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%. Under a new income tax treaty between Switzerland and
the United States which was signed in October of 1996, but is subject to
ratification, the rates of withholding would be essentially the same as under
the Treaty.
21
<PAGE>
ITEM 8. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Form 20-F. The statement of
operations data for the years ended March 31, 1997, 1996, and 1995 and the
balance sheet data at March 31, 1997 and 1996 were derived from the audited
consolidated financial statements of the Company included elsewhere in this Form
20-F. The statement of operations data for the years ended March 31, 1994 and
1993 and the balance sheet data at March 31, 1995, 1994, and 1993 were derived
from audited consolidated financial statements not included herein.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
<S> <C> <C> <C> <C> <C>
Net sales............................ $ 413,716 $ 355,043 $ 302,813 $ 329,941 $ 293,751
Cost of goods sold................... 290,856 259,264 227,079 236,845 206,229
--------- --------- --------- --------- ---------
Gross profit......................... 122,860 95,779 75,734 93,096 87,522
Operating expenses:..................
Marketing and selling............. 54,722 45,730 41,305 47,725 38,465
Research and development.......... 26,481 20,705 18,717 24,815 21,502
General and administrative........ 20,380 19,553 17,382 23,518 19,268
Restructuring and other (1)....... -- -- 8,896 4,236 --
--------- --------- --------- --------- ---------
Operating income (loss).............. 21,277 9,791 (10,566) (8,198) 8,287
Interest income (expense), net....... (752) (2,304) (1,297) (1,417) (1,999)
Other income (expense), net.......... 2,305 1,747 (6,342) 11,983 (778)
--------- --------- --------- --------- ---------
Income (loss) before income taxes.... 22,830 9,234 (18,205) 2,368 5,510
Provision for income taxes........... (1,770) (1,041) (1,170) (983) (802)
--------- --------- --------- --------- ---------
Net income (loss).................... $ 21,060 $ 8,193 $ (19,375) $ 1,385 $ 4,708
========= ========= ========= ========= =========
Net income (loss) per share (2)...... $ 12.02 $ 4.76 $ (11.17) $ 0.85 $ 3.06
Weighted average registered shares
and equivalents (2)............... 1,752,080 1,723,014 1,735,220 1,632,704 1,540,252
Cash dividend per registered share (3) $ 0.9623 $ -- $ 1.7945 $ 1.6768 $ 1.3589
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
--------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........... $ 38,504 $ 28,564 $ 36,265 $ 29,880 $ 24,830
Total assets........................ 216,423 181,321 197,349 215,545 198,618
Long-term debt, net of current 3,188 4,768 6,520 21,900 24,966
maturities..........................
Convertible bond.................... -- -- -- 22,228 21,273
Shareholders' equity................ 111,691 71,438 69,162 85,877 60,598
</TABLE>
(1) See Note 10 of Notes to Consolidated Financial Statements.
(2) See Note 3 of Notes to Consolidated Financial Statements for a discussion
of the shares used to compute net income (loss) per share.
(3) Dividends have been declared in Swiss francs and translated into U.S.
dollars. For fiscal year 1993, cash dividend per registered share is
presented assuming conversion into registered shares, par value Chf 20
(see Note 6 of Notes to Consolidated Financial Statements).
22
<PAGE>
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.
<TABLE>
<CAPTION>
AVERAGE(1) HIGH LOW PERIOD END
---------- ---- --- ----------
<S> <C> <C> <C> <C>
Fiscal 1992............................................... Chf 1.471 Chf 1.344 Chf 1.590 Chf 1.502
Fiscal 1993............................................... 1.418 1.225 1.548 1.490
Fiscal 1994............................................... 1.464 1.391 1.531 1.410
Fiscal 1995............................................... 1.314 1.133 1.458 1.133
Fiscal 1996............................................... 1.170 1.117 1.232 1.189
Fiscal 1997............................................... 1.296 1.192 1.489 1.438
</TABLE>
(1) Represents the average of the Noon Buying Rates on the last day of each
month during the relevant period.
23
<PAGE>
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and related notes thereto contained in Item 18
of this Form 20-F. The following discussion contains forward looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Predictions of future events are
inherently uncertain. Actual events could differ materially from those predicted
in the forward looking statements as a result of the risks set forth in the
following discussion and the risks discussed above under the caption
"Description of Business" in Item 1 of this Form 20-F, including those under the
heading "Additional Risk Factors That Could Affect Operating Results."
Additional information relating to the risks in the Company's business is
contained in "Description of Business" in Item 1 above.
OVERVIEW
The Company was founded in Switzerland in 1981 and operated through a
variety of related corporate entities until 1988. At that time, in connection
with the Company's initial public offering in Switzerland, it was reorganized as
a Swiss holding company, Logitech International S.A. The Company's operational
headquarters are located in Fremont, California, with engineering centers in
Fremont, Romanel-sur-Morges, Switzerland and Taiwan. Manufacturing operations
are located in China and Taiwan with distribution facilities in the United
States, Europe and Asia.
The Company's net sales are primarily derived from sales of two product
lines, control devices and imaging solutions, and to a lesser extent from the
sale of other products. Control devices include mice, trackballs, six degrees of
freedom ("6DOF") controllers, touchpads, joysticks, gamepads, 3D game
controllers and remote controls. In each of fiscal 1997, 1996 and 1995, net
sales of control devices accounted for a substantial majority of the Company's
total net sales. Imaging solutions include color personal scanners and color
digital video cameras and have accounted for an increasing proportion of the
Company's net sales since fiscal 1995. Other products include partner products,
as well as product lines that are being phased out for strategic purposes.
The Company recognizes revenue upon product shipment, less amounts for
estimated returns and price protection. Amounts provided for returns and price
protection are estimated based upon historical experience and the Company's
assessment of inventory in the retail channel. Although the Company believes
that it has provided adequate amounts for projected returns, from time to time
it has experienced return levels in excess of amounts provided and no assurance
can be given that such amounts will be sufficient for actual returns in future
periods. In addition, the Company continuously introduces product upgrades,
enhancements and improved packaging, and thus may experience higher rates of
returns of its older products.
The following tables set forth net sales for each of the Company's product
lines and net sales for each product line as a percentage of total net sales:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales:
Control devices............................... $329,439 $289,249 $247,066
Imaging solutions............................. 78,264 56,074 39,041
Other......................................... 6,013 9,720 16,706
-------- -------- --------
Total net sales.................................... $413,716 $355,043 $302,813
======== ======== ========
Net sales:
Control devices............................... 80% 81% 82%
Imaging solutions............................. 19 16 13
Other......................................... 1 3 5
-------- -------- --------
Total net sales.................................... 100% 100% 100%
======== ======== ========
</TABLE>
24
<PAGE>
The Company sells its products through two primary channels, OEMs and a
network of retail distributors and resellers ("retail"). Products sold to OEMs,
principally control 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 approximately 35% to 52% on a quarterly basis over the past
three fiscal years.
The Company's gross margins are affected by a number of factors, including
the mix between retail and OEM sales, product mix, product obsolescence, price
and cost reductions. In 1997 and 1996, the Company experienced an improvement in
its gross margin, primarily due to a higher proportion of relatively higher
margin retail sales and the realization of cost reductions from the
consolidation of the Company's high volume manufacturing operations in China.
The Company believes this trend is not sustainable and that gross margins are
likely to decline due to an increasing proportion of sales of lower margin
imaging solution products, continued price pressures and a decline in the rate
of cost reductions in the Company's manufacturing operations.
Beginning in the early 1990s, unit sales of control devices to OEMs
increased substantially, while OEM and retail sales prices declined
significantly. In fiscal 1995, the Company implemented a plan to reduce
manufacturing expense by consolidating its production operations in Asia,
phasing out non-strategic product lines and reducing its work force. As a
result, the Company recorded a one-time restructuring charge of $8.9 million in
fiscal 1995. The Company returned to profitability in fiscal 1996 and has been
profitable on a quarterly basis since that time.
The Company operates in multiple jurisdictions and its profits are taxed
pursuant to the tax laws of such jurisdictions. The Company's 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 transfer pricing that impact the recognition of net sales and
allocation of expenses in the Company's various subsidiaries, and changes in
management's assessment of matters such as the realizability of deferred tax
assets. The Company regularly assesses the realizability of deferred tax assets
based on a number of factors, including the Company's past earnings history and
expected future taxable income. As a result of this process, a valuation
allowance is recorded for deferred tax assets when management believes it is
more likely than not that the Company will not realize such deferred tax assets.
In the past, the Company has experienced substantial fluctuation in its
effective income tax rate. The Company's effective income tax rates in the past
three fiscal years reflect a variety of factors that may not be present in
fiscal 1998. As a result, the Company's effective income tax rate may increase
in future periods.
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. The Company has not previously paid any such VAT on its
exported Chinese manufactured products. The Company is in discussion with
Chinese officials and has been assured that, notwithstanding statements made by
tax authorities, the VAT would not be applied to the Company. The Company
therefore believes this matter will not have a material adverse effect on the
Company's results of operations. Were the VAT to be applied to the Company, the
Company could incur a significant charge to operations, as well as an increase
in its cost of goods sold. As a result, the Company would seek to mitigate the
future effect by reorganizing its operations in China. There can be no assurance
that any application of the VAT to the Company would not have a material adverse
effect on the Company's current or future results of operations, or that the
Company's efforts to mitigate any impact of the VAT would be successful.
The Company publishes its consolidated financial statements in U.S.
dollars, however, a portion of the Company's revenues and expenses are
denominated in currencies other than the U.S. dollar. The functional currencies
for the Company's operations are primarily the U.S. dollar, and to a lesser
extent, the Dutch guilder, Swiss franc, Taiwanese dollar and Japanese yen.
Certain of the Company's operations record revenues in one currency while
incurring costs in different currencies. This currency imbalance has, and may
continue to, result in foreign currency transaction gains and losses. Further,
the Company is subject to risks of currency exchange to the extent of currency
fluctuations between the U.S. dollar and other currencies in which the Company
transacts its business. Currently, the Company does not actively hedge against
exchange rate fluctuations, although it may elect to do so in the future.
Accordingly, changes in exchange rates may have a material adverse effect on the
Company's net sales, cost of goods sold, gross margin and net income.
Prior to fiscal 1997, the Company published its financial statements in
Swiss francs and managed its currency exchange exposure against the Swiss franc.
In April 1996, concurrent with adopting the U.S. dollar as its reporting
currency and restating its historical financial statements into U.S. GAAP, the
Company redenominated its debt into
25
<PAGE>
U.S. dollars. Therefore, the restatement of the consolidated financial
statements into U.S. dollars for periods through March 31, 1996 resulted in debt
denominated in Swiss francs which was not hedged and, when remeasured into the
appropriate functional currency for U.S. GAAP purposes, resulted in the Company
recording exchange losses, primarily during fiscal 1995.
INITIAL PUBLIC OFFERING IN THE U.S.
On March 27, 1997, the Company sold 200,000 registered shares from treasury
in a U.S. initial public offering in the form of 2,000,000 American Depository
Shares ("ADS"), with net proceeds to the Company of $26.8 million. On April 25,
1997, the Company sold an additional 30,000 shares from treasury under an option
granted to the underwriters to cover over-allotments, generating net proceeds of
$4.5 million.
RESULTS OF OPERATIONS
The following table sets forth certain consolidated financial statement
amounts as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Net sales......................................................... 100.0% 100.0% 100.0%
Cost of goods sold................................................ 70.3 73.0 75.0
------ ------ ------
Gross profit...................................................... 29.7 27.0 25.0
Operating expenses:
Marketing and selling....................................... 13.3 12.9 13.6
Research and development.................................... 6.4 5.8 6.2
General and administrative.................................. 4.9 5.5 5.8
Restructuring and other..................................... -- -- 2.9
------ ------ ------
Operating income (loss)........................................... 5.1 2.8 (3.5)
Interest income (expense), net.................................... (0.2) (0.7) (0.4)
Other income (expense), net....................................... 0.6 0.5 (2.1)
------ ------ ------
Income (loss) before income taxes................................. 5.5 2.6 (6.0)
Provision for income taxes........................................ (0.4) (0.3) (0.4)
------ ------ ------
Net income (loss)................................................. 5.1% 2.3% (6.4)%
====== ====== ======
</TABLE>
YEAR ENDED MARCH 31, 1997 COMPARED TO YEAR ENDED MARCH 31, 1996
Net Sales
---------
Net sales for the year ended March 31, 1997 increased 17% to $413.7 million
from $355.0 million in the year ended March 31, 1996. This increase was
primarily due to growth in sales of color sheetfed scanners and retail sales of
control devices. These increases were partially offset by a decrease in retail
sales of handheld scanners and OEM sales of trackballs due to a market shift to
touchpads. The Company anticipates slower revenue growth from color sheetfed
scanners due to increased competition and pricing pressure.
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 for the year ended
March 31, 1997 increased 28% to $122.9 million, or 29.7% of net sales, compared
to $95.8 million, or 27.0% of net sales, in the year ended March 31, 1996.
26
<PAGE>
The improvement in gross margin was primarily due to a higher proportion of
retail sales and to reduced production costs resulting from the consolidation of
high volume manufacturing in Suzhou. These improvements were partially offset by
the higher proportion of sales of sheetfed scanners which have lower margins.
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
expense for the year ended March 31, 1997 increased 20% to $54.7 million, or
13.3% of net sales, compared to $45.7 million, or 12.9% of net sales, in the
year ended March 31, 1996. This increase was primarily due to the Company's
introduction and support of new retail products, including PageScan Color Pro,
MouseMan 96, MouseMan Cordless, SurfMan and WingMan Warrior, and, to a lesser
extent, to expenses incurred in connection with the development of markets in
the Asia Pacific region and the enhancement of the corporate logo.
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. Research and development expense for the year
ended March 31, 1997 increased 28% to $26.5 million, or 6.4% of net sales,
compared to $20.7 million, or 5.8% of net sales, in the year ended March 31,
1996. This increase was primarily due to an increase in personnel engaged in the
development of the Company's next generation of products. The Company expects to
continue to devote significant resources to research and development to sustain
its competitive position.
General and Administrative
--------------------------
General and administrative expense consists of personnel and related
overhead and facilities costs for the finance, information systems, executive,
human resources, and legal functions. General and administrative expense for the
year ended March 31, 1997 increased 4% to $20.4 million, or 4.9% of net sales,
compared to $19.6 million, or 5.5% of net sales, for the year ended March 31,
1996. This increase resulted primarily from an increase in compensation expense
associated with employee stock benefit plans, salary increases and, to a lesser
extent, additional infrastructure costs to support expansion in Asia.
Interest Income (Expense)
-------------------------
Interest expense for the year ended March 31, 1997 decreased to $0.8
million from $2.3 million for the year ended March 31, 1996. This decrease was
primarily due to improved cash flow from operating activities, which led to a
reduction in the Company's average bank borrowings and to an increase in
interest bearing cash and cash equivalents during the period.
Other Income (Expense)
----------------------
Other income for the year ended March 31, 1997 increased to $2.3 million
from $1.7 million for the year ended March 31, 1996, primarily due to foreign
exchange gains. It is unlikely that the Company will experience this level of
foreign exchange gains in fiscal 1998 and any unfavorable movements in currency
exchange rates could result in foreign exchange losses.
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 is 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, 1997 increased to
$1.8 million, representing a 7.8% effective tax rate, from $1.0 million,
representing an 11.3% effective tax rate, for the year ended March 31, 1996. The
decrease in the effective tax rate is primarily due to the recognition of net
deferred tax assets based upon expected future realization, partially offset by
income earned in higher tax jurisdictions, increases in unrecoverable
withholding taxes and estimated taxes payable in Asia.
27
<PAGE>
YEAR ENDED MARCH 31, 1996 COMPARED TO YEAR ENDED MARCH 31, 1995
Net Sales
---------
Net sales for fiscal 1996 increased 17% to $355.0 million from $302.8
million for fiscal 1995. This increase was due primarily to strong unit volume
sales of control devices into the OEM channel and the impact of new retail
products sold into both the control device and imaging solution retail markets.
These products included the PageScan Color scanner, the WingMan and WingMan
Extreme joysticks and the TrackMan Marble pointing device. These increases in
net sales were partially offset by price reductions in control devices and the
phase out of non-strategic product lines.
Gross Profit
------------
Gross profit for fiscal 1996 increased 26% to $95.8 million, or 27.0% of
net sales, from $75.7 million, or 25.0% of net sales, in fiscal 1995. This
increase was primarily due to reductions in component costs and other
manufacturing efficiencies associated with higher volume production and, to a
lesser extent, the elimination of certain lower-margin products. This increase
was partially offset by lower average selling prices.
Marketing and Selling
---------------------
Marketing and selling expense for fiscal 1996 increased 11% to $45.7
million, or 12.9% of net sales, from $41.3 million, or 13.6% of net sales, in
fiscal 1995. This increase was primarily due to costs associated with the
Company's introduction and support of new retail products in both the control
devices and imaging solutions retail markets. In addition, foreign currency
translations also contributed to the increase due to a weaker U.S.
dollar during fiscal 1996.
Research and Development
------------------------
Research and development expense for fiscal 1996 increased 11% to $20.7
million, or 5.8% of net sales, from $18.7 million, or 6.2% of net sales, in
fiscal 1995. This increase was primarily due to increased personnel and related
indirect costs for accelerated development of the Company's color sheetfed
scanner and video products. In addition, foreign currency translations also
contributed to the increase due to a weaker U.S. dollar during fiscal 1996.
These increases were partially offset by the elimination of research and
development efforts related to the phase-out of non-strategic product lines.
General and Administrative
--------------------------
General and administrative expense for fiscal 1996 increased 12% to $19.6
million, or 5.5% of net sales, from $17.4 million, or 5.8% of net sales, in
fiscal 1995. This increase was primarily due to severance, hiring and relocation
costs and, to a lesser extent, inflation and foreign currency translations due
to a weaker U.S. dollar during fiscal 1996.
Restructuring and Other
-----------------------
During fiscal 1995, the Company recorded a restructuring charge of $8.9
million. The restructuring charge included $3.2 million in connection with
discontinuing certain manufacturing activities in the U.S. and Ireland, $1.9
million relating to the write-off of assets associated with product lines to be
phased out, and $3.8 million for a reduction in global work force. The charge
associated with the work force reduction primarily represents severance
associated with personnel reductions of approximately 500 positions, the
majority of which were manufacturing. Substantially all amounts associated with
discontinuing certain manufacturing activities and product lines were incurred
by March 31, 1995. Approximately 60% of the planned work force reduction was
completed at March 31, 1995, with the remainder of the reductions completed by
December 31, 1995. See Note 9 of Notes to Consolidated Financial Statements.
28
<PAGE>
Interest Income (Expense)
-------------------------
Interest expense for fiscal 1996 increased to $2.3 million from $1.3
million for fiscal 1995. This increase was primarily due to higher interest
rates charged on outstanding borrowings.
Other Income (Expense)
----------------------
Other income for fiscal 1996 was $1.7 million as compared to an expense of
$6.3 million in fiscal 1995. The expense in fiscal 1995 consisted principally of
exchange losses associated with the Company's Swiss-franc denominated debt and a
weak U.S. dollar at year-end. In fiscal 1996, the Company realized a gain due to
the recovery of the U.S. dollar.
Provision for Income Taxes
--------------------------
The provision for income taxes for fiscal 1996 decreased to $1.0 million
from $1.2 million for fiscal 1995. The effective tax rate for fiscal 1996 was
11.3%. The pretax loss in fiscal 1995 would normally have generated a tax
benefit, however, due to the uncertainty of the future utilization of the tax
losses principally incurred in one of the Company's subsidiaries, no benefit was
recognized. In addition, taxable income in other jurisdictions resulted in a
provision for taxes of $1.2 million in fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
Since fiscal 1995, the Company has financed its operations and capital
requirements primarily through cash flow from operations, bank borrowings and
the sale of registered shares held in treasury.
As of March 31, 1997, the Company had cash and cash equivalents of $38.5
million. The Company also had credit lines with several European and Asian banks
totaling $47.3 million as of that date. As is common for businesses in European
countries, the Company's 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, 1997, there were $17.8 million
of borrowings under these facilities.
The Company's operating activities generated cash of $27.5 million for the
year ended March 31, 1997, primarily from net income adjusted for depreciation
and an increase in accrued liabilities. These positive cash flows were partially
offset by growth in accounts receivable and inventories, as the Company's
business continued to expand. Operating activities generated cash of $8.8
million in fiscal 1996, primarily from net income adjusted for depreciation,
partially offset by an increase in working capital requirements.
The Company's investing activities used cash of $17.8 million for the year
ended March 31, 1997, primarily for capital expenditures. Investing activities
generated cash of $5.4 million in fiscal 1996, primarily from the sale of the
Company's offices in Fremont, partially offset by $12.3 million of capital
expenditures. The proceeds from the sale of the Fremont offices were used to
repay outstanding indebtedness.
The Company's financing activities generated cash of $1.1 million in the
year ended March 31, 1997. Sale of the Company's registered shares from treasury
generated cash of $33.4 million, of which $26.8 million represents the proceeds
(net of commissions and expenses) from the U.S. public offering. An additional
$3.7 million was generated from the issuance of new registered shares. These
cash flows were partially offset by $14.8 million spent to acquire treasury
shares. Proceeds from the sale of registered shares enabled the Company to
reduce its debt by $21.8 million. Financing activities used cash of $21.4
million in fiscal 1996, primarily for repayment of bank borrowings of $19.9
million.
The Company believes that it will continue to make capital expenditures in
the future to support ongoing and expanded operations and that such expenditures
may be substantial. The Company believes that its cash and cash equivalents,
cash from operations, available borrowings under its bank lines of credit will
be sufficient to fund capital expenditures and working capital needs for the
foreseeable future.
29
<PAGE>
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Daniel V. Borel 46 Chairman of the Board and Chief Executive Officer
Pierluigi Zappacosta 46 Vice Chairman of the Board
Barry Zwarenstein 48 Sr. Vice President, Finance and Administration and General Manager of
the Americas Area
Erh-Hsun Chang 47 Sr. Vice President, General Manager, Far Eastern Area & Worldwide
Operations
Marc M. Chatel 41 Sr. Vice President, General Manager, European Area and Worldwide Sales
and Marketing
Rory Dooley 32 Sr. Vice President, Business Divisions
Patrick W. Brubeck 45 Vice President, Information and Quality Systems
Vladimir M. Langer 54 Vice President, Worldwide OEM Sales and Marketing
Dominique Pitteloud 35 Vice President, Scanner Division
Stephanie Schweighofer-Jones 45 Vice President, Corporate Marketing Communications
Margaret J. Wynne 39 Vice President, General Counsel and Business Development
Kwong Soon Chay 44 Director
Pier Carlo Falotti (1)(2) 54 Director
Jean-Louis Gassee (1)(2) 52 Director
</TABLE>
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Daniel V. Borel, a founder of the Company, has been the Chairman of the
---------------
Board of Directors and Chief Executive Officer of Logitech International S.A.
since July 1992. Prior to that time, Mr. Borel was Chairman of the Board. He has
held various other executive positions with the Company and its predecessors
since their founding. Mr. Borel holds an MS in computer science from Stanford
University and a degree in physics from the Ecole Polytechnique Federale,
Lausanne, Switzerland.
Pierluigi Zappacosta, a founder of the Company, has been Vice Chairman of
--------------------
the Board of Directors of Logitech International S.A. since July 1992. Prior to
that time, Mr. Zappacosta was Chief Executive Officer, President and Vice
Chairman. He has been a director and has held various other executive positions
with the Company and its predecessors since their founding. Mr. Zappacosta holds
an MS in computer science from Stanford University and a Laurea degree in
electrical engineering from the University of Rome, Italy.
Barry Zwarenstein joined the Company as Vice President and Chief Financial
-----------------
Officer in July 1996. In April 1997, Mr Zwarenstein was named Sr. Vice
President, Finance and Administration and General Manager of the Americas Area.
Prior to July 1996, Mr. Zwarenstein held various positions with FMC Corporation
from June 1975 to June 1996, including Chief Financial Officer, FMC Europe, from
February 1992 to June 1996. Mr. Zwarenstein holds a BA in economics from the
University of Natal, South Africa, and an MBA from the Wharton School of the
University of Pennsylvania. Mr. Zwarenstein is a Chartered Accountant (South
Africa).
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 Sr. Vice President, General Manager, Far Eastern Area & Worldwide
Operations. During 1986 and 1987, Mr. Chang held various other positions with
the Company. From January 1994 to December 1994, 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.
30
<PAGE>
Marc M. Chatel has held various management positions with the Company since
--------------
August 1988, including Vice President, General Manager, European Area and
Worldwide Retail Sales and Marketing. In April 1997, Mr. Chatel was named Sr.
Vice President, General Manager, European Area and Worldwide Sales and
Marketing. From February 1979 to July 1988, Mr. Chatel held various sales and
marketing positions with E.I. Du Pont de Nemours & Co. Mr. Chatel holds a degree
in mechanics from the Ecole Polytechnique Federale, Lausanne, Switzerland.
Rory Dooley has held various positions with the Company since July 1984,
-----------
including Vice President, Control Devices Division and Special Projects. In
April 1997, Mr. Dooley was named Sr. Vice President, Business Divisions. Mr.
Dooley holds a BS in engineering and a BA in mathematics from the University of
Dublin, Trinity College, Ireland. Mr. Dooley has stated his intention to resign
from the Company in June 1997 to continue his education.
Patrick W. Brubeck has held various executive positions with the Company
------------------
since June 1993, including Vice President, Worldwide Quality and Human
Resources, and General Manager, Americas Area. In April 1997, Mr. Brubeck was
named Vice President, Information and Quality Systems. From August 1990 to June
1993, Mr. Brubeck was Vice President, Total Quality for Silicon Valley Group,
Lithography. From April 1979 to August 1990, Mr. Brubeck held various positions
with Advanced Micro Devices, including Director of Corporate Quality Assurance
from April 1989. Mr. Brubeck holds a BS in electrical engineering from the
University of California at Los Angeles.
Vladimir M. Langer has been Vice President, Worldwide OEM Sales and
------------------
Marketing of the Company since April 1996. From January 1992 to April 1996, Mr.
Langer was Vice President for Sales and Marketing for Integral Peripherals HDD.
Mr. Langer holds a BS in mechanical engineering from Charles University, Prague,
Czech Republic.
Dominique Pitteloud has held various position with the Company since
-------------------
November 1985, including Vice President, Imaging Solutions Division. In April
1997, Mr. Pitteloud was named Vice President, Scanner Division. Mr. Pitteloud
holds a BS in electrical engineering from Yverdon University, Switzerland, and
an MBA from Santa Clara University.
Stephanie Schweighofer-Jones has been Vice President, Corporate Marketing
----------------------------
Communications of the Company since July 1996. Prior to that time, Ms.
Schweighofer-Jones held various positions with Bull HN Information Systems from
October 1989 to June 1996, including Director of Strategic Communications from
January 1995. Ms. Schweighofer-Jones holds a BA in French literature from Wells
College.
Margaret J. Wynne has been Vice President, General Counsel and Business
-----------------
Development of the Company since April 1994. Prior to that time, Ms. Wynne was
Director of Legal Affairs from July 1992 to April 1994. From September 1990 to
June 1992, Ms. Wynne was an Associate Professor at Golden Gate University School
of Law. Ms. Wynne joined Pillsbury, Madison & Sutro as an associate in September
1982 becoming a member of the firm in January 1990. Ms. Wynne holds a BA in
French from San Francisco State University and a JD from Hastings College of the
Law of the University of California.
Kwong Soon Chay was elected a director of Logitech International S.A. in
---------------
June 1997. Since July 1996, Mr. Chay has been Managing Director of IntreSource
Systems Pte, Ltd. Before IntreSource, Mr. Chay held various executive positions
with Creative Technology Ltd. during the period of 1986 to June 1996, including
President/COO from 1992. Mr. Chay holds a degree in Physics from University of
Singapore.
Pier Carlo Falotti has been a director of Logitech International S.A. since
------------------
June 1996. Since September 1996, Mr. Falotti has been Senior Vice President for
Europe, Middle East and Africa of Oracle Corporation. From February 1994 until
September 1996, Mr. Falotti was Executive Vice President of International
Operations for AT&T, where he also served as President and Chief Executive
Officer for Europe, the Middle East and Africa. From 1992 to 1994, Mr. Falotti
was President and Chief Executive Officer of The Ask Group, Inc. From 1969 to
1992, Mr. Falotti was with Digital Equipment Corporation, serving as President
and Chief Executive Officer of
31
<PAGE>
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 during the period December 1980 to September 1990, including President
of the Apple Products Division. Mr. Gassee holds a science degree from the
Universite de Paris.
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, 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.
BOARD COMPOSITION
The Company's Articles of Incorporation set the minimum number of directors
at three. The Company presently has five directors. 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.
The Board has established an Audit Committee and a Compensation Committee.
The Audit Committee oversees actions taken by the Company's independent
accountants, recommends the engagement of accountants and reviews the Company's
internal audits. The Compensation Committee approves the compensation of
executives of the Company and makes recommendations to the Board of Directors
with respect to standards for setting compensation levels for other employees.
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS
In the fiscal year ended March 31, 1997, the Company's four non-employee
directors during that year were paid an aggregate of $62,000 (translated at the
Noon Buying Rate on March 31, 1997). In addition, each of the Company's
non-employee directors were eligible to receive 240 registered shares as partial
compensation for service on the Board of 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 Company paid an aggregate of $2,503,122, denominated in U.S. dollars
and in Swiss francs and Taiwanese dollars (translated at the Noon Buying Rate on
March 31, 1997), to eleven executive officers for services rendered in all
capacities to the Company in the fiscal year ended March 31, 1997. A portion of
the compensation paid to the executive officers in fiscal 1997 was pursuant to
certain annual performance-based bonus arrangements.
32
<PAGE>
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
As of June 1, 1997, there were outstanding options to purchase an aggregate
of 212,098 registered shares at exercise prices ranging from $14.14 - $187.35
and expiration dates ranging from March 1999 to February 2007. As of June 1,
1997, the Company's directors and executive officers held options to purchase an
aggregate of 63,212 registered shares at exercise prices ranging from $14.14 to
$131.85 with expiration dates ranging from March 2002 to December 2006. In
addition, as of June 1, 1997, three advisors to the Company held options to
purchase an aggregate of 360 registered shares at an exercise price of $0.
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
Not applicable
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED
Not applicable
ITEM 15. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
SECURITIES
Not applicable
ITEM 17. FINANCIAL STATEMENTS
The Company has responded to Item 18.
ITEM 18. FINANCIAL STATEMENTS
See pages F-1 through F-22.
33
<PAGE>
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
a. Financial Statements
Report of Independent Accountants
Consolidated balance sheets at March 31, 1997 and 1996
Consolidated statements of operations for the years ended March 31,
1997, 1996, and 1995
Consolidated statements of cash flows for the years ended March 31,
1997, 1996, and 1995
Consolidated statements of changes in shareholders' equity for the
years ended March 31, 1997, 1996, and 1995
Notes to consolidated financial statements
b. Exhibits
Exhibit
Number Description of Document
------- -----------------------
1.1 Form of Underwriting Agreement. (1)
3.1 Statuts of the Company, as amended. (1)
3.2 Organizational Regulations of the Company, as amended. (1)
4.1 Form of 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 (including as an exhibit
the form of American Depositary Receipt) (incorporated herein
by reference to Exhibit (a) to the Registration Statement on
Form F-6 (File No. 333-06464) filed with the Commission on
February 14, 1997.) (1)
4.2 Specimen Registered Share of the Company. (1)
10.1 1996 Employee Share Purchase Plan, as amended. (1)
10.2 1988 Stock Option Plan, including the U.S. Sub-Plan and the
Swiss Sub-Plan. (1)
10.3 1996 Stock Plan, as amended. (1)
10.4 Purchase Agreement dated December 8, 1995 for property
located at 6505, 6607, 6453, 6401, and 6493 Kaiser Drive, and
34551 Ardenwood Boulevard, Fremont, California. (1)
10.5 Lease Agreement dated March 5, 1996 for facility located at
6505 and 6607 Kaiser Drive, Fremont California, and First
Amendment to Lease Agreement dated August 9, 1996. (1)
10.6 Sale and Purchase Contract dated October 28, 1995 for
facility located in Suzhou, People's Republic of China. (1)
10.7 Purchase and License Agreement between the Company and Omron
Corporation, dated as of April 30, 1996./+/ (1)
10.8 Form of Indemnification Agreement with Logitech International
S.A. (1)
10.9 Form of Indemnification Agreement with Logitech, Inc. (1)
11.1 Statement regarding computation of per share earnings. (1)
21.1 List of Subsidiaries of the Registrant. (1)
23.1 Consent of Price Waterhouse SA, Independent Accountants.
34
<PAGE>
-------------
+ Confidential treatment requested with respect to portions of such
exhibit.
(1) Incorporated by reference to exhibit included in the Registrant's
Registration Statement on Form F-1 (File No. 333-06424) declared
effective by the Securities and Exchange Commission on March 19, 1997.
35
<PAGE>
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/ Daniel Borel
_____________________________
Daniel Borel
Chief Executive Officer
By: /s/ Barry Zwarenstein
_____________________________
Barry Zwarenstein
Chief Finance Officer,
Chief Accounting Officer,
and U.S. Representative
June 27, 1997
36
<PAGE>
LOGITECH INTERNATIONAL S.A.
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants F-2
Consolidated balance sheets at March 31, 1997 and 1996 F-3
Consolidated statements of operations for the years
ended March 31, 1997, 1996, and 1995 F-4
Consolidated statements of cash flows for the years
ended March 31, 1997, 1996, and 1995 F-5
Consolidated statements of changes in shareholders' equity
for the years ended March 31, 1997, 1996, and 1995 F-6
Notes to consolidated financial statements F-7
F-1
<PAGE>
REPORT OF THE 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 operations, 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, 1997
and 1996, and the results of their operations and their cash flows for each of
the three years in the period ended March 31, 1997, 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 the opinion expressed above.
Price Waterhouse SA
Lausanne, Switzerland
April 30, 1997
F-2
<PAGE>
LOGITECH INTERNATIONAL S.A.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31,
--------------------
1997 1996
-------- --------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................................... $ 38,504 $ 28,564
Accounts receivable............................................................. 71,634 62,601
Inventories..................................................................... 63,377 52,598
Other current assets............................................................ 9,253 6,448
-------- --------
Total current assets....................................................... 182,768 150,211
Property, plant and equipment, net.................................................. 32,135 28,035
Other assets........................................................................ 1,520 3,075
-------- --------
Total assets............................................................... $216,423 $181,321
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt................................................................ $ 17,849 $ 36,082
Current maturities of long-term debt........................................... 162 327
Accounts payable............................................................... 44,406 39,974
Accrued liabilities............................................................ 38,690 28,331
-------- --------
Total current liabilities................................................. 101,107 104,714
Long-term debt, net of current maturities.......................................... 3,188 4,768
Other liabilities.................................................................. 437 401
-------- --------
Total liabilities......................................................... $104,732 $109,883
-------- --------
Commitments and contingencies (Note 9)
Shareholders' equity:
Registered shares, par value CHF 20 - 2,101,688 authorized, 353,312
conditionally authorized, 2,001,688 issued and outstanding at March 31,
1997; 1,955,000 authorized, issued and outstanding at March 31, 1996....... $ 28,738 $ 28,090
Additional paid-in capital..................................................... 73,430 46,292
Less registered shares in treasury, at cost, 182,839 at March 31, 1997 and
322,476 at March 31, 1996 .................................................. (16,813) (14,881)
Retained earnings.............................................................. 31,730 12,241
Cumulative translation adjustment.............................................. (5,394) (304)
-------- --------
Total shareholders' equity................................................ 111,691 71,438
-------- --------
Total liabilities and shareholders' equity................................ $216,423 $181,321
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
LOGITECH INTERNATIONAL S.A.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net sales................................................................. $ 413,716 $ 355,043 $ 302,813
Cost of goods sold........................................................ 290,856 259,264 227,079
--------- --------- ---------
Gross profit.............................................................. 122,860 95,779 75,734
Operating expenses:
Marketing and selling................................................. 54,722 45,730 41,305
Research and development.............................................. 26,481 20,705 18,717
General and administrative............................................ 20,380 19,553 17,382
Restructuring and other............................................... -- -- 8,896
--------- --------- ---------
Operating income (loss)................................................... 21,277 9,791 (10,566)
Interest income (expense), net............................................ (752) (2,304) (1,297)
Other income (expense), net............................................... 2,305 1,747 (6,342)
--------- --------- ---------
Income (loss) before income taxes......................................... 22,830 9,234 (18,205)
Provision for income taxes................................................ (1,770) (1,041) (1,170)
--------- --------- ---------
Net income (loss)......................................................... $ 21,060 $ 8,193 $ (19,375)
========= ========= =========
Net income (loss) per share............................................... $ 12.02 $ 4.76 $ (11.17)
Weighted average registered shares and
equivalents......................................................... 1,752,080 1,723,014 1,735,226
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
LOGITECH INTERNATIONAL S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................................... $ 21,060 $ 8,193 $(19,375)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization........................................... 11,483 10,032 13,395
Loss on disposal of property, plant and equipment....................... 1,045 162 2,344
Gain on sale of investments............................................. -- -- (901)
Write-down of investments............................................... 1,222 379 500
Stock compensation expense.............................................. 2,765 594 536
Restructuring and other charges......................................... -- -- 8,896
Deferred income taxes................................................... (3,107) 526 1,720
Changes in assets and liabilities:........................................
Accounts receivable..................................................... (12,656) (5,379) 1,344
Inventories............................................................. (13,177) (10,859) 16,933
Other current assets.................................................... (309) 3,880 4,680
Accounts payable........................................................ 8,706 (4,226) 4,393
Accrued liabilities..................................................... 10,418 5,508 (9,057)
-------- -------- --------
Net cash provided by operating activities............................ 27,450 8,810 25,408
-------- -------- --------
Cash flows from investing activities:
Additions to property, plant and equipment................................ (18,059) (12,267) (5,501)
Proceeds from sales of property, plant and equipment...................... 190 17,851 223
Proceeds from sale of investment.......................................... -- -- 1,305
Other investing activities................................................ 45 (212) 72
-------- -------- --------
Net cash provided by (used in) investing activities.................. (17,824) 5,372 (3,901)
-------- -------- --------
Cash flows from financing activities:
Increase (decrease) in short-term debt.................................... (18,388) (19,866) 10,034
Borrowings of long-term debt.............................................. 2,146 620 --
Repayment of long-term debt............................................... (3,400) (2,249) (22,633)
Purchase of treasury shares............................................... (14,824) (3,249) (4,292)
Proceeds from sale of treasury shares..................................... 33,389 3,359 2,736
Proceeds from issuance of registered shares............................... 3,741 -- --
Dividends paid............................................................ (1,571) -- (2,946)
-------- -------- --------
Net cash provided by (used in) financing activities.................. 1,093 (21,385) (17,101)
-------- -------- --------
Effect of exchange rate changes on cash and cash equivalents............... (779) (498) 1,979
-------- -------- --------
Net increase (decrease) in cash and cash equivalents....................... 9,940 (7,701) 6,385
Cash and cash equivalents at beginning of period........................... 28,564 36,265 29,880
-------- -------- --------
Cash and cash equivalents at end of period................................. $ 38,504 $ 28,564 $ 36,265
======== ======== ========
Supplemental cash flow information:
Interest paid........................................................ $ 1,943 $ 2,822 $ 1,934
Income taxes paid.................................................... $ 3,033 $ 1,568 $ 2,891
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
LOGITECH INTERNATIONAL S.A.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
REGISTERED SHARES ADDITIONAL TREASURY SHARES CUMULATIVE
------------------- PAID-IN ----------------- RETAINED TRANSLATION
SHARES AMOUNT CAPITAL SHARES AMOUNT EARNINGS ADJUSTMENT TOTAL
--------- -------- -------- ------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
April 1, 1994.................. 1,955,000 $ 28,090 $ 44,767 313,292 $(13,491) $ 26,369 $ 142 $ 85,877
Net (loss)..................... -- -- -- -- -- (19,375) -- (19,375)
Dividends ($1.7945 per share).. -- -- -- -- -- (2,946) -- (2,946)
Share premium on conversion of
bonds...................... -- -- 8 (50) 1 -- -- 9
Purchase of treasury shares.... -- -- -- 50,292 (4,292) -- -- (4,292)
Sale of treasury shares upon
exercise of options and
purchase rights............ -- -- 481 (36,236) 2,922 -- -- 3,403
Cumulative translation
adjustment................. -- -- -- -- -- -- 6,486 6,486
--------- ------- ------- ------- -------- ------- ------- --------
March 31, 1995................. 1,955,000 28,090 45,256 327,298 (14,860) 4,048 6,628 69,162
Net income..................... -- -- -- -- -- 8,193 -- 8,193
Purchase of treasury shares.... -- -- -- 52,073 (3,249) -- -- (3,249)
Sale of treasury shares upon
exercise of options and
purchase rights............ -- -- 1,036 (56,895) 3,228 -- -- 4,264
Cumulative translation
adjustment................. -- -- -- -- -- -- (6,932) (6,932)
--------- ------- ------- ------- -------- ------- ------- --------
March 31, 1996................. 1,955,000 28,090 46,292 322,476 (14,881) 12,241 (304) 71,438
Net income..................... -- -- -- -- -- 21,060 -- 21,060
Dividends ($0.9623 per share).. -- -- -- -- -- (1,571) -- (1,571)
Purchase of treasury shares.... -- -- -- 121,667 (14,824) -- -- (14,824)
Sale of treasury shares upon
exercise of options and
purchase rights............ -- -- 2,132 (60,020) 5,607 -- -- 7,739
Sale of treasury shares........ -- -- 59 (1,284) 100 -- -- 159
Issue of registered shares upon
exercise of options........ 46,688 648 5,336 -- -- -- -- 5,984
Sale of treasury shares in
public offering, net of
related expenses........... -- -- 19,611 (200,000) 7,185 -- -- 26,796
Cumulative translation
adjustment................. -- -- -- -- -- -- (5,090) (5,090)
--------- ------- ------- ------- -------- ------- ------- --------
March 31, 1997................. 2,001,688 $ 28,738 $73,430 182,839 $(16,813) $31,730 $(5,394) $111,691
========= ======= ======= ======= ======== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY:
Logitech International S.A. is incorporated in the Canton of Vaud,
Switzerland and, together with its subsidiaries, is collectively referred to as
"Logitech" or the "Company." The Company designs, manufactures and markets
Senseware products which include control devices and imaging solutions which
often serve as the primary physical interface between users and their personal
computers and other multimedia devices. The Company sells its products to both
original equipment manufacturers ("OEMs") and to a network of retail
distributors and resellers.
NOTE 2 -- INITIAL PUBLIC OFFERING IN THE U.S:
On March 27, 1997, the Company sold 200,000 registered shares from treasury
in a U.S. initial public offering in the form of 2,000,000 American Depositary
Shares ("ADS"). Total proceeds from the offering amounted to $32.0 million, or
$16 per ADS. Underwriting discounts and commissions, share issue and other taxes
and other offering expenses amounted to $5.2 million, which resulted in net
proceeds to the Company of $26.8 million. On April 25, 1997, the Company sold an
additional 30,000 registered shares from treasury under an option granted to the
underwriters to cover over-allotments. Such sale generated net proceeds of $4.5
million.
NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
---------------------
The consolidated financial statements include the accounts of the Company
and its wholly and majority-owned subsidiaries. All material intercompany
balances and transactions have been eliminated. The Company has recorded 100% of
the losses incurred by its majority-owned subsidiaries in as much as the
minority shareholders' equity has been exhausted and the Company does not expect
such shareholders to provide additional equity capital. 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.
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 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, accruals for estimated
future returns and credits for price protection are provided for upon revenue
recognition. Such amounts are estimated based on historical rates of returns,
distributor inventory levels and other factors.
F-7
<PAGE>
LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Foreign Currency
----------------
The functional currencies of the Company's operations are primarily the
U.S. dollar, and to a lesser extent, the Dutch guilder, Swiss franc, Taiwanese
dollar and the 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 the monthly average 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 operations.
Cash Equivalents
----------------
The Company considers all highly liquid instruments purchased with a
maturity of three months or less to be cash equivalents.
Concentration of Credit Risk
----------------------------
Financial instruments which 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, and its policy is designed to limit its exposure
with any one financial institution.
The Company sells its products to large OEM's and to high volume resellers,
and, as a result, maintains individually significant receivable balances with
large customers. At March 31, 1997, two customers each represented 5.5% and 8.5%
of total accounts receivable and at March 31, 1996, four customers each
represented between 5.0% and 6.5% 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 credit risk with respect to accounts receivable 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 any 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 each period for potentially
excess or slow moving inventories.
Property, Plant and Equipment, net
----------------------------------
Property, plant and equipment are stated at cost. Additions and
improvements are capitalized, whereas maintenance and repairs are expensed as
incurred. Depreciation is provided using the straight-line method over estimated
useful lives of five to 25 years for plant and buildings and one to five years
for equipment.
Software Development Costs
--------------------------
Software development costs incurred prior to technological feasibility are
expensed as incurred. The Company defines establishment of technological
feasibility as the completion of a working model. Software development costs
incurred subsequent to the establishment of technological feasibility through
the period of market availability of products are capitalized. To date,
capitalized software development costs have not been material.
F-8
<PAGE>
LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 of
assets and liabilities for financial reporting and income tax purposes. In
estimating future tax consequences, expected future events are taken into
consideration except for potential tax law or tax rate changes.
Derivative Financial Instruments
--------------------------------
The Company does not currently enter into foreign currency exchange
contracts to hedge against the effects of changes in foreign currency exchange
rates on its net investment in foreign subsidiaries and net exposures from
assets and liabilities denominated in foreign currencies, although it may elect
to do so in the future. Before April 1, 1996 when the Company was actively
hedging in material amounts, gains and losses on foreign currency exchange
contracts which hedged foreign subsidiary investments were recorded in the
cumulative translation adjustment component of shareholders' equity. Gains and
losses on foreign currency exchange contracts which hedged net exposures from
assets and liabilities denominated in foreign currencies were recorded in other
income (expense), net.
Fair Value of Financial Instruments
-----------------------------------
For certain of the Company's financial instruments, including cash and cash
equivalents, 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 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 (Loss) Per Share
---------------------------
Net income (loss) per share is computed using the weighted average number
of outstanding registered shares (net of shares held in treasury) and, if
dilutive, weighted average registered share equivalents. Registered share
equivalents include registered shares issuable upon conversion of convertible
bonds (using the if-converted method) and from the exercise of stock options
(using the treasury stock method). Pursuant to the requirements of the
Securities and Exchange Commission, treasury stock sold and registered share
equivalents relating to stock options granted during the twelve months preceding
the commencement of the U.S. public offering and through the effective date
(March 27, 1997) have been included in the calculation of net income (loss) per
share (using the treasury stock method and the public offering price) as if they
were outstanding for all periods presented through December 31, 1996.
F-9
<PAGE>
LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
New Accounting Standards
------------------------
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
which the Company adopted on April 1, 1996. The adoption of SFAS No. 121 did not
have a material impact on the Company's consolidated financial statements.
Also in 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which requires companies to measure employee stock compensation
based on the fair value method of accounting or to continue to apply the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB No. 25"), and provide pro forma footnote disclosure
under the fair value method described in SFAS No. 123. The Company adopted SFAS
No. 123 on April 1, 1996 and will continue to apply the principles of APB No. 25
while providing the pro forma footnote disclosures required by SFAS No. 123.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share." This
statement is effective for the Company's fiscal quarter ending December 31,
1997. Under the SFAS No. 128, primary earnings per share is replaced by basic
earnings per share and fully diluted earnings per share is replaced by diluted
earnings per share. If the Company had adopted SFAS No. 128 for the year ended
March 31, 1997, basic earnings per share and diluted earnings per share would
have been $13.00 and $12.02, respectively. SFAS No. 128 will require the
retroactive restatement of all previously reported amounts upon adoption.
F-10
<PAGE>
LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS)
NOTE 4 -- BALANCE SHEET COMPONENTS:
<TABLE>
<CAPTION>
MARCH 31,
----------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accounts receivable:
Accounts receivable.......................................................... $ 73,951 $ 63,992
Allowance for doubtful accounts.............................................. (2,317) (1,391)
-------- --------
$ 71,634 $ 62,601
======== ========
Inventories:
Raw materials................................................................ $ 11,289 $ 10,809
Work-in-process.............................................................. 2,255 3,658
Finished goods .............................................................. 49,833 38,131
-------- --------
$ 63,377 $ 52,598
======== ========
Property, plant and equipment, net:
Land......................................................................... $ 2,203 $ 2,289
Plant and buildings.......................................................... 25,007 22,419
Equipment.................................................................... 56,448 48,723
-------- --------
83,658 73,431
Less accumulated depreciation................................................ (51,523) (45,396)
-------- -------
$ 32,135 $ 28,035
======== ========
</TABLE>
NOTE 5 -- FINANCING ARRANGEMENTS:
Short-term Credit Facilities
----------------------------
To support short-term working capital requirements, the Company had seven
uncommitted, unsecured bank lines of credit aggregating $47,296,000 at March 31,
1997. Borrowings outstanding were $17,849,000 and $36,082,000 at March 31, 1997
and 1996, respectively. At March 31, 1997, borrowings under these agreements
were substantially all denominated in U.S. dollars at interest rates averaging
6.39% and were due on demand.
F-11
<PAGE>
LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS)
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1997 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt:
--------------
Renewable Swiss mortgage loan expiring in 1999, bearing interest at
5.45%, secured by properties with net book values aggregating
$4,137,000 at March 31, 1997........................................ $ 3,188 $ 4,602
Various unsecured borrowings.......................................... 162 493
------- -------
Total long-term debt.................................................. 3,350 5,095
Less current maturities............................................... (162) (327)
------- -------
Long-term portion..................................................... $ 3,188 $ 4,768
======= =======
</TABLE>
Repayments of long-term debt as of March 31, 1997 are due as follows
(in thousands):
Year ending March 31,
1998................................................ $ 162
1999................................................ 3,188
------
Total............................................... $3,350
======
NOTE 6 -- SHAREHOLDERS' EQUITY:
In June 1996, the shareholders approved an increase of 100,000 authorized
registered shares, par value Chf 20, and an additional 400,000 conditional
registered shares, par value Chf 20, 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, the Company may only pay dividends in
Swiss francs. The payment of dividends is limited to certain amounts of
unappropriated retained earnings (approximately $7,491,000 at March 31, 1997)
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 $4,854,000 at March 31, 1997.
F-12
<PAGE>
LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS)
NOTE 7 -- EMPLOYEE BENEFIT PLANS:
STOCK COMPENSATION PLANS
Employee Share Purchase Plans
-----------------------------
Under the 1989 and the 1996 Employee Share Purchase Plans (the "Purchase
Plans"), eligible employees may purchase registered shares at a price which is
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. Compensation expense of approximately $1,440,000, $435,000, and
$419,000 was recorded for the years ended March 31, 1997, 1996 and 1995,
respectively, under the Purchase Plans. Such amounts have been credited to
additional paid-in capital.
Stock Option Plans
------------------
Under the 1988 Stock Option Plan (the "1988 Option Plan"), options to
purchase registered shares may be granted to employees and consultants at
exercise prices ranging from zero to amounts in excess the fair market value of
the registered shares on the date of grant. The terms and conditions with
respect to options granted are determined by the Board of Directors who
administer the 1988 Option Plan. Options generally vest over four years and
remain outstanding for periods not exceeding ten years. Compensation expense is
recorded 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
$1,325,000, $159,000, and $117,000 was recorded for the years ended March 31,
1997, 1996 and 1995, respectively, under the 1988 Option Plan. Such amounts are
accrued as a liability when the expense is recognized; amounts are subsequently
credited to additional paid-in capital upon exercise of the related stock
option. Compensation expense to be recognized in future periods approximates
$1,021,000.
In recognition of the decline in the fair market value of the Company's
registered shares in fiscal 1995 and 1996, the Company repriced options to
purchase approximately 129,500 registered shares in July 1996 to amounts
slightly in excess of the then current fair market value.
F-13
<PAGE>
LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS)
A summary of activity under the 1988 Option Plan, and a limited number of
other option agreements, is as follows (translated into U.S. dollars based upon
specific Swiss franc prices):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------
NUMBER OF PRICE
SHARES PER SHARE
--------- ---------
<S> <C> <C>
Balance, April 1, 1994.......................................................... 102,836 $0-158
Granted......................................................................... 67,230 0-139
Exercised....................................................................... (4,039) 0-120
Canceled and expired............................................................ (10,733) 0-162
-------
Balance, March 31, 1995......................................................... 155,294 0-200
Granted......................................................................... 67,850 0-103
Exercised....................................................................... (14,510) 0-95
Canceled and expired............................................................ (54,017) 0-95
-------
Balance, March 31, 1996......................................................... 154,617 0-101
Granted......................................................................... 167,095 103
Exercised....................................................................... (77,105) 84
Canceled and expired............................................................ (22,537) 88
-------
Balance, March 31, 1997......................................................... 222,070 86
=======
</TABLE>
The Company had approximately 184,000 conditional shares available for the
future grant of stock options and had reserved approximately 153,000 treasury
shares and 69,000 conditional shares for the future exercise of stock options
outstanding at March 31, 1997.
The following table summarizes information regarding stock options
outstanding at March 31, 1997 (translated into U.S. dollars based upon specific
Swiss franc prices):
<TABLE>
<CAPTION>
RANGE OF EXERCISE PRICES
-----------------------------------------------------
0 - 75 76 77 - 88 89 99 - 183 TOTAL
<S> <C> <C> <C> <C> <C> <C>
OPTIONS OUTSTANDING
-------
Number outstanding.................. 4,540 72,179 56,739 43,037 45,575 222,070
Weighted-average remaining =======
contractual life (years).......... 6.9 7.6 9.1 9.2 9.4
Weighted-average exercise price..... $ 43 $ 76 $ 88 $ 89 $101
OPTIONS EXERCISABLE
-------
Number exercisable.................. 2,714 40,871 9,327 10,293 3,133 66,338
Weighted-average exercise price..... $ 41 $ 76 $ 88 $ 89 $ 90 =======
</TABLE>
In June 1996, the shareholders approved the 1996 Stock Plan (the "1996
Option Plan"). Under the 1996 Option Plan, stock 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. The 1996 Option Plan
became effective upon the closing of the U.S. public offering. A total of
300,000 registered shares may be issued under the 1996 Option Plan. There were
no options granted under the 1996 option plan during fiscal 1997.
F-14
<PAGE>
LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS)
Pro Forma Stock Compensation Disclosure
---------------------------------------
The Company applies the provisions of APB No. 25 and related
interpretations in accounting for compensation expense under the Purchase Plans
and the 1988 Option Plan. Had compensation expense under these plans been
determined pursuant to SFAS No. 123, the Company's net income and net income per
share for the years ended March 31, 1997 and 1996 would have been as follows:
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
----------- ---------
<S> <C> <C>
Net income (in thousands):
Year ended March 31, 1997........................................................ $21,060 $19,968
Year ended March 31, 1996........................................................ $ 8,193 $ 6,712
Net income per share:
Year ended March 31, 1997........................................................ $12.02 $11.76
Year ended March 31, 1996........................................................ $ 4.76 $ 4.11
</TABLE>
The fair value of the shares granted under the Purchase Plans was estimated
using the Black-Scholes model with the following assumptions: zero dividend
yield for both years; an expected life of six months for both years; expected
volatility of 45% and 49% for the years ended March 31, 1997 and 1996,
respectively; and a risk-free interest rate of 5.7% and 5.4% for the years ended
March 31, 1997 and 1996, respectively. The weighted average fair value of
purchase rights granted under the Purchase Plans during the years ended March
31, 1997 and 1996 was $39.00 and $ 29.00, respectively.
The fair value of each stock option grant on the date of grant was
estimated using the Black-Scholes option pricing model with the following
weighted average assumptions: zero dividend yield for both years; expected
volatility of 74% and 80% for the years ended March 31, 1997 and 1996,
respectively; risk-free interest rate of 6.7% and 5.5% for the years ended March
31, 1997 and 1996, respectively; and expected lives of 3 years for both periods.
The weighted average fair value of options granted during the years ended March
31, 1997 and 1996 was $65.00 and $64.00 respectively.
The above pro forma amounts include compensation expense based on the fair
value of options vesting during the years ended March 31, 1997 and 1996 and
exclude the effects of options granted prior to April 1, 1995. Accordingly, the
above pro forma net income and net income per share are not representative of
the effects of computing stock option compensation expense using the fair value
method for future periods.
The following table summarizes information regarding stock options granted
during the year ended March 31, 1997.
<TABLE>
<CAPTION>
EXERCISE PRICE AT NUMBER OF OPTIONS WEIGHTED-AVERAGE WEIGHTED-AVERAGE
DATE OF GRANT GRANTED EXERCISE PRICE FAIR VALUE
------------- ----------------- ---------------- ----------------
<S> <C> <C> <C>
Equal to fair market 41,800 $115 $68
Less than fair market 121,295 $ 99 $64
More than fair market 4,000 $107 $53
-------
Total 167,095 $103 $65
=======
</TABLE>
F-15
<PAGE>
LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
pursuant 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, 1997, 1996, and 1995, were $801,000,
$830,000, and $ 810,000, respectively.
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 in the statement of operations includes the following
components:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------
1997 1996 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost of benefits earned.................................................... $346 $326 $318
Interest cost on projected benefit obligations..................................... 108 79 55
Actual return on plan assets....................................................... (91) (70) (62)
Amortization of transition amount.................................................. (5) (5) (5)
---- ---- ----
Net pension cost................................................................... $358 $330 $306
==== ==== ====
The funded status of the defined benefit pension plan is as follows:
<CAPTION>
MARCH 31,
--------------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested................................................................................ $ 4 $ --
Nonvested............................................................................. 387 555
------ ------
Accumulated benefit obligation............................................................ 391 555
Excess of projected benefit obligation over accumulated benefit obligation................ 1,061 1,483
------ ------
Total projected benefit obligation........................................................ 1,452 2,038
Plan assets at fair value................................................................. (1,163) (1,369)
------ ------
Plan assets less than projected benefit obligation........................................ 289 669
Unrecognized net gain..................................................................... -- (153)
Unrecognized net liability arising at transition.......................................... 62 56
------ ------
Net pension liability..................................................................... $ 351 $ 572
====== ======
</TABLE>
F-16
<PAGE>
LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS)
For the year ended March 31, 1997, the actuarial assumptions used for
determining the present value of the projected benefit obligation included a
7.0% discount rate and an annual increase of 7.0% in compensation levels. The
expected long-term rate of return on plan assets was 7.0%. The related
assumptions for the year ended March 31, 1996 were 7.5%, 7.5% and 7.5%,
respectively. Plan assets are comprised primarily of stocks, bonds and
short-term deposits.
NOTE 8 -- INCOME TAXES:
The Company is incorporated in Switzerland but operates in various
countries with differing tax laws and rates. Further, the Company's income
(loss) 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:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------
1997 1996 1995
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Swiss................................................................. $ 1,011 $(1,514) $ 38
Foreign............................................................... 3,866 2,029 (588)
Deferred:
Swiss................................................................. -- 598 (224)
Foreign............................................................... (3,107) (72) 1,944
------- ------- -------
Total............................................................... $ 1,770 $ 1,041 $ 1,170
======= ======= =======
</TABLE>
Deferred income tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
------------------
1997 1996
------ -------
(IN THOUSANDS)
<S> <C> <C>
Net operating loss carryforwards...................................................... $ 777 $ 2,347
Depreciation and amortization......................................................... 794 437
Research and development and other tax credit carryforwards........................... 2,733 2,480
Accruals.............................................................................. 7,287 6,090
Other................................................................................. 923 1,164
------ ------
Gross deferred tax assets............................................................. 12,514 12,518
------ ------
Depreciation and amortization......................................................... -- (578)
Other................................................................................. (172) (241)
------ ------
Gross deferred tax liabilities........................................................ (172) (819)
------ ------
Valuation allowance................................................................... (8,824) (11,288)
------ ------
Net deferred tax assets............................................................... $3,518 $ 411
====== ======
</TABLE>
F-17
<PAGE>
LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Management regularly assesses the realizability of deferred tax assets
recorded in each of 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
for approximately the next twelve months. 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 $8,824,000 has been
established for such amounts at March 31, 1997. At March 31, 1997, the Company
had tax credit carryforwards for U.S. federal and state purposes of
approximately $7,662,000 which expire through 2011.
The expected tax provision (benefit) at the weighted average rate is
generally calculated using pre-tax accounting income (loss) in each country
multiplied by that country's applicable statutory tax rates. A provision has not
been made for additional taxes on undistributed earnings of foreign subsidiaries
of approximately $11,139,000 at March 31, 1997, because such earnings are
considered to be indefinitely reinvested. The difference between the provision
for income taxes and the expected tax provision (benefit) at the weighted
average tax rate is reconciled as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------
1997 1996 1995
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Expected tax provision (benefit) at weighted average rate................. $ 5,744 $ 1,455 $ (4,331)
Permanent differences..................................................... 192 124 163
Net operating losses utilized............................................. (1,569) (768) --
Tax credits utilized...................................................... (590) -- --
Change in estimate........................................................ 579 -- --
Increase (decrease) in valuation allowance................................ (2,464) 306 5,306
Other .................................................................... (122) (76) 32
------- ------- -------
Total provision for income taxes.......................................... $ 1,770 $ 1,041 $ 1,170
======= ======= =======
</TABLE>
Changes in estimated taxes payable during the year ended March 31, 1997
related primarily to an accrual for certain taxes that management now believes
are likely to be paid based upon ongoing discussions with tax authorities in
connection with having closed one of the Company's operations in Asia during
fiscal 1996.
NOTE 9 -- 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, 1997 are as follows (in
thousands):
Year ending March 31,
1998.......................................... $1,780
1999.......................................... 1,464
2000.......................................... 1,466
2001.......................................... 1,321
2002 and thereafter........................... 5,479
-------
$11,510
=======
Rent expense amounted to $1,900,000, $1,100,000, and $700,000 during the
years ended March 31, 1997, 1996, and 1995, respectively.
F-18
<PAGE>
LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. The Company has not previously paid any such VAT on its
exported Chinese manufactured products. The Company is in discussion with
Chinese officials and has been assured that, notwithstanding statements made by
tax authorities, the VAT would not be applied to the Company. The Company
therefore believes this matter will not have a material adverse effect on the
Company's results of operations. Were the VAT to be applied to the Company, the
Company could incur a significant charge to operations, as well as an increase
in its cost of goods sold. As a result, the Company would seek to mitigate the
future effect by reorganizing its operations in China. There can be no assurance
that any application of the VAT to the Company would not have a material adverse
effect on the Company's current or future results of operations, or that the
Company's efforts to mitigate any impact of the VAT would be successful.
The Company is involved in various legal actions and claims. In the opinion
of management, the future settlements of such actions and claims will not have a
material adverse effect on the Company's financial position or results of
operations.
NOTE 10 -- RESTRUCTURING AND OTHER CHARGES:
During fiscal 1995, the Company recorded a restructuring charge of
$8,896,000. The restructuring charge included $3,161,000 in connection with
discontinuing certain manufacturing activities in the U.S. and Ireland,
$1,890,000 relating to the write-off of assets associated with product lines to
be phased out, and $3,845,000 for a reduction in global work force. The charge
associated with the work force reduction primarily represents severance payments
associated with personnel reductions of approximately 500 positions, the
majority of which were manufacturing.
Substantially all amounts associated with discontinuing certain
manufacturing activities and product lines were incurred by March 31, 1995.
Approximately 60% of the planned work force reduction was completed at March 31,
1995, with the remainder of the reductions completed by December 31, 1995.
NOTE 11 -- INTEREST AND OTHER INCOME (EXPENSE):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income............................................................. $ 1,191 $ 518 $ 637
Interest expense............................................................ (1,943) (2,822) (1,934)
------- ------- -------
Interest income (expense), net.............................................. $ (752) $(2,304) $(1,297)
======= ======= =======
Exchange gains (losses), net................................................ $2,727 $ 1,190 $(6,740)
Gain on sale of investment.................................................. -- -- 901
Other, net.................................................................. (422) 557 (503)
------- ------- -------
Other income (expense), net................................................. $2,305 $1,747 $(6,342)
======= ======= =======
</TABLE>
Other, net includes rental income of $228,000, $1,437,000, and $1,440,000
for the years ended March 31, 1997, 1996, and 1995, respectively, while the
related rental expense amounted to $0, $894,000, and $632,000 respectively.
F-19
<PAGE>
LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In fiscal 1994, the Company sold the majority of its interest in Advanced
Gravis Computer Technology Ltd. ("Gravis) realizing a gain of $12,237,000. The
Company's remaining interest in Gravis was sold during fiscal 1995, realizing a
gain of $901,000.
NOTE 12 -- GEOGRAPHIC INFORMATION:
The Company operates in one business segment, which is the design,
production and marketing of computer peripherals and software products designed
to enhance personal computer usability. Inter-area sales are recorded at amounts
which approximate market.
The following table summarizes financial information by geographic area (in
thousands):
<TABLE>
<CAPTION>
NORTH
EUROPE FAR EAST AMERICA ELIMINATIONS CONSOLIDATED
--------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED MARCH 31, 1997
- -------------------------
Sales to unaffiliated customers......... $ 151,648 $ 64,138 $ 197,930 $ -- $ 413,716
Inter-area sales........................ 8,640 186,326 9,128 (204,094) --
--------- --------- --------- ---------- ----------
Total net sales......................... $ 160,288 $ 250,464 $ 207,058 $(204,094) $ 413,716
========= ========= ========= ========== ==========
Operating income........................ $ 8,335 $ 6,919 $ 10,875 $ (4,852) $ 21,277
========= ========= ========= ========== ==========
Identifiable assets..................... $ 184,205 $ 113,226 $ 73,984 $(190,546) $ 180,869
========= ========= ========= ==========
Corporate assets........................ 35,554
----------
Total assets............................ $ 216,423
==========
YEAR ENDED MARCH 31, 1996
- -------------------------
Sales to unaffiliated customers......... $ 129,917 $ 60,024 $ 165,102 $ -- $ 355,043
Inter-area sales........................ 14,377 188,719 3,691 (206,787) --
--------- --------- --------- ---------- ----------
Total net sales......................... $ 144,294 $ 248,743 $ 168,793 $ (206,787) $ 355,043
========= ========= ========= ========== ==========
Operating income........................ $ 5,855 $ 2,546 $ 7,658 $ (6,268) $ 9,791
========= ========= ========= ========== ==========
Identifiable assets..................... $ 233,054 $ 98,772 $ 63,113 $ (222,068) $ 172,871
========= ========= ========= ==========
Corporate assets........................ 8,450
---------
Total assets............................ $ 181,321
=========
YEAR ENDED MARCH 31, 1995
- -------------------------
Sales to unaffiliated customers......... $ 117,015 $ 46,495 $ 139,303 $ -- $ 302,813
Inter-area sales........................ 34,748 115,863 11,000 (161,611) --
--------- --------- --------- ---------- ----------
Total net sales......................... $ 151,763 $ 162,358 $ 150,303 $ (161,611) $ 302,813
========= ========= ========= ========== ==========
Operating income (loss)................. $ (1,319) $ 1,743 $ (6,338) $ (4,652) $ (10,566)
========= ========= ========= ========== ==========
Identifiable assets..................... $ 220,278 $ 96,209 $ 76,635 $ (208,050) $ 185,072
========= ========= ========= ==========
Corporate assets........................ 12,277
----------
Total assets............................ $ 197,349
==========
</TABLE>
F-20
<PAGE>
LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Substantially all of the Company's manufacturing operations are located in
Suzhou, China, and Hsinchu, Taiwan. These operations could be severely impacted
by national or regional 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. Fluctuations in exchange rates between the U.S. dollar and the
Chinese renminbi or the Taiwanese dollar may also adversely affect the Company's
results of operations.
F-21
<PAGE>
QUARTERLY SUMMARY
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED,
---------------------------------------------------------------------------------------
MAR. 31, DEC. 31, SEPT. JUNE 30, MAR. 31, DEC. 31, SEPT. JUNE 30,
1997 1996 30, 1996 1996 1996 1995 30, 1995 1995
-------- -------- -------- -------- --------- -------- -------- --------
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales....................... $ 108.3 $ 128.8 $ 92.2 $ 84.4 $ 92.9 $ 99.8 $ 84.7 $ 77.6
Gross profit.................... 32.2 38.1 27.4 25.2 25.8 26.6 22.4 21.0
Operating expenses:
Marketing and selling....... 14.4 15.5 12.8 12.0 12.6 12.4 10.6 10.1
Research and
development.............. 7.7 6.8 5.6 6.4 6.2 5.0 5.0 4.4
General and
administrative........... 5.3 5.4 4.8 4.9 6.1 4.9 4.2 4.5
------ ------ ------ ------ ------ ------ ------ ------
Total....................... 27.4 27.7 23.2 23.3 24.9 22.3 19.8 19.0
Operating income................ 4.8 10.4 4.2 1.9 .9 4.3 2.6 2.0
Net income...................... $4.7 $10.5 $3.4 $2.4 $1.6 $3.3 $2.3 $1.0
Weighted average registered
shares and equivalents....... 1,725,228 1,746,555 1,766,405 1,772,774 1,742,952 1,733,633 1,723,021 1,719,744
Net income per share............ $ 2.73 $ 5.97 $ 1.94 $ 1.38 $ .92 $ 1.93 $ 1.31 $ .60
Net income per ADS*............. $ .27 $ .60 $ .19 $ .14 $ .09 $ .19 $ .13 $ .06
</TABLE>
*Net income per ADS represents net income divided by the proforma
conversion of each weighted average registered share and equivalent into 10
ADS's.
The following table sets forth certain quarterly financial information as a
percentage of net sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED,
---------------------------------------------------------------------------------------
MAR. 31, DEC. 31, SEPT. JUNE 30, MAR. 31, DEC. 31, SEPT. JUNE 30,
1997 1996 30, 1996 1996 1996 1995 30, 1995 1995
-------- ------- ------- ------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales .............. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit ........... 29.7 29.6 29.7 29.9 27.8 26.7 26.4 27.0
Operating expenses:
Marketing and
selling.......... 13.3 12.0 13.9 14.2 13.6 12.5 12.5 13.0
Research and
development...... 7.1 5.2 6.1 7.5 6.7 5.0 6.0 5.7
General and
administrative... 4.9 4.2 5.2 5.9 6.5 4.9 4.9 5.7
----- ----- ----- ----- ----- ----- ----- -----
Total .............. 25.3 21.4 25.2 27.6 26.8 22.4 23.4 24.4
Operating income ....... 4.4 8.2 4.5 2.3 1.0 4.3 3.0 2.6
Net income ............. 4.3% 8.2% 3.7% 2.9% 1.7% 3.3% 2.7% 1.3%
</TABLE>
F-22
<PAGE>
Exhibit 23.1
------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-7058) of Logitech International S.A. of our
report dated April 30, 1997 appearing on page F-2 of this Annual Report on Form
20-F.
/s/ Price Waterhouse SA
Price Waterhouse SA
Lausanne, Switzerland
June 25, 1997
