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UNITED STATES
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, 2000
Commission File Number: 0-29174
______________
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:
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Title of each class Name of each exchange on which registered
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American Depositary Shares Nasdaq National Market
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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, 2000 was 4,162,920 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
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TABLE OF CONTENTS
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Part I Page
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Item 1 Description of Business............................................................................ 3
Item 2 Description of Property............................................................................ 14
Item 3 Legal Proceedings.................................................................................. 15
Item 3.5 Additional Information concerning stock split...................................................... 15
Item 4 Control of Registrant.............................................................................. 16
Item 5 Nature of Trading Market........................................................................... 17
Item 6 Exchange Controls and Other Limitations Affecting Security Holders................................. 18
Item 7 Taxation........................................................................................... 19
Item 8 Selected Financial Data............................................................................ 20
Item 9 Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 22
Item 9A. Quantitative and Qualitative Disclosure About Market Risk.......................................... 27
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..................................... 32
Item 13. Interest of Management in Certain Transactions..................................................... 32
Part II
Item 14. Description of Securities to be Registered......................................................... 32
Part III
Item 15. Defaults Upon Senior Securities.................................................................... 32
Item 16. Changes in Securities and Changes in Security for Registered Securities............................ 32
Part IV
Item 17. Financial Statements............................................................................... 33
Item 18. Financial Statements............................................................................... 33
Item 19. Financial Statements and Exhibits.................................................................. 33
Signatures................................................................................................... 34
Consolidated Financial Statements............................................................................ F-1
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In this document, unless otherwise indicated, references to the "Company"
or "Logitech" are to Logitech International S.A., its consolidated subsidiaries
and predecessor entities.
(C) 2000 Logitech. All rights reserved. Logitech, the Logitech logo, and
the Logitech products referred to herein are either the trademarks or the
registered trademarks of Logitech. All other trademarks are property of their
respective owners.
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Part I
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 human
interface devices for personal computers. These products include corded and
cordless mice and keyboards, trackballs, joysticks, gamepads, steering wheels,
multimedia speakers and internet video cameras.
Over the past 19 years, Logitech has offered PC users a variety of means to
access the world of digital information. The Company's products provide user-
centric solutions intended to be easy to install and easy to use, and that are
combined with integrated software for seamless compatibility and added
functionality. These products allow users to personalize and enrich their
computing environment, and to easily operate in a variety of applications.
The Company was founded in Switzerland in 1981, and in 1988 listed its
shares in an initial public offering in Switzerland. In March 1997, the Company
sold 400,000 registered shares from treasury in a U.S. initial public offering
in the form of 4,000,000 American Depository Shares ("ADS"), and listed the ADSs
on the Nasdaq National Market System. The Company maintains its operational
headquarters through its U.S. subsidiary in Fremont, California, with regional
headquarters through local subsidiaries in Romanel-sur-Morges, Switzerland and
Hsinchu, Taiwan. In addition, Logitech has manufacturing operations in China,
with distribution facilities in the United States, Europe and Asia.
Industry Background
Increasingly affordable prices and wider availability of business, consumer
and education applications have created a very large installed base of personal
computers. The market penetration of PCs and other information access devices,
while already high in developed countries, is likely to increase worldwide.
In addition, continuing growth in processing power and communications
bandwidth, the increased accessibility of digital content and the pervasive
access and use of the internet and the world wide web, create opportunities for
new applications, new users and dramatically richer interactions between users
and digital information.
These develoments create new demands by consumers wanting to take full
advantage of this increased processing power, new applications and new
technologies in an intuitive, productive and convenient manner.
While today's PCs have evolved from productivity tools for word processing
into affordable multimedia appliances capable of creating and manipulating vast
amounts of graphics, sound and video, the human interface devices sold with most
new units are quite limited in the functionality they provide. This is true
especially since the need to strike a low price point dictates basic, no frills
peripherals, for example a basic mouse and alphanumeric keyboard. Logitech
believes the expanded PC capabilities present a significant opportunity to
companies that provide innovative human interface tools for the computer, since
basic mice and alphanumeric keyboards can not effectively harness this new power
and fully enable many of the newest applications.
Therefore, on one hand, PC manufacturers continue to require large volumes
of both basic and enhanced human interface devices; on the other, the after-
market (that is, the market for peripheral add-ons sold separately from the
basic PC), widens dramatically as consumers demand more function-rich interface
tools.
Logitech also believes that trends established in the consumer electronics
market, such as brand identity, affordability, ease of installation and use, as
well as visual appeal, are rapidly becoming important aspects of PC and human
interface device purchase decisions.
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The Logitech Solution
Logitech's interface devices are often the most frequent point of physical
interaction between people and their PCs. As such, they are a significant
factor in determining the man-machine interface and increasing its richness. The
Company's products are designed to reflect the way people want to work, learn,
communicate and play, allowing them to personalize and enrich their computing
environment as they perform these activities using their PC.
Over the past 19 years, Logitech has established itself as a leading
designer, manufacturer and marketer of computer control devices (mice and
trackballs). Building on this leadership position, the Company has capitalized
on the growth in personal computing by significantly expanding its product line
to include a wide range of products, from radio-based cordless mice and
keyboards to game controllers, internet video cameras and multimedia speaker
systems. The Company's products as a whole help define, visually and
functionally, the physical space that is commonly referred to as "the desktop".
They bring together the tools that business people, home users, and computer
gamers need to make their time at the computer and their time on the internet
more productive, comfortable, and enjoyable. In addition, they feature award-
winning industrial design and are engineered to work together.
Through integrated hardware and software functionality, Logitech products
are also optimized for the internet: internet video cameras with "one button"
video mail access; keyboards and mice with "one click" access to specific web
sites and value-added web services, multimedia speakers equipped with software
for digital music download and data management are examples of the Company's
commitment to ensuring a user-friendly and effective internet experience.
Logitech's OEM products are a frequent choice among PC manufacturers,
because they need high quality, affordable, and functional human interface
devices in high volumes to equip the PCs they offer to the marketplace. In
addition, the Company's retail products increasingly target and appeal directly
to consumers and businesses as they purchase add-on devices for their PCs.
Purchasers look for the add-ons to either replace the basic control devices that
originally came with their PCs with devices that offer increased comfort,
flexibility and functionality; or as they decide to enable new applications
requiring dedicated human interface devices (for example, steering wheels and
joysticks for PC-based games).
Logitech's products have long been at the forefront of technological
innovation, with a long list of "firsts" to its name and a patent portfolio of
more than 75 patents. In pointing devices, the Company pioneered optical
sensing technology with the opto-mechanical mouse in 1982. The Company was also
among the first to market the digital still camera in 1991. In addition,
recognizing the limitations of many connectivity methods, the Company has
continually embraced new connectivity technologies and standards, particularly
those that contribute to increased ease of use, such as the Universal Serial
Bus. In fact, as one of the first companies in the industry to recognize the
importance of the USB interface in enabling true "plug and play" connectivity,
Logitech demonstrated the first working USB prototype at Fall Comdex in 1995.
In addition, the Company pioneered a digital radio-based cordless connectivity
solution that frees the desktop from cable clutter while demonstrating the
reliability of a corded connection.
The Company believes the following to be among its key competitive
strengths:
. Substantial Technical Expertise. The Company has accumulated significant
expertise in the key engineering disciplines that underlie its products.
For instance, Logitech's engineers have continuously enhanced motion-
encoding technology for control devices over several distinct generations.
Many of these technologies have applications across multiple product
offerings, allowing the Company to leverage its accumulated technology
investment.
Logitech believes its future lies not only in its strong internal technical
resources, but also from partnering with other industry leaders with
complementary technologies that promise to make the interface more
productive, natural and enjoyable. Examples of this include devices that
provide enhanced realism by incorporating force feedback or 3D
functionality. In April 1998, the Company acquired 10% of the then
outstanding stock of Immersion Corporation, investing in technology that
the Company believes is important in the force feedback field. In June
1998, the Company purchased a 49% interest in Space Control GmbH, with an
obligation under certain conditions to acquire the remaining shares. The
Company believes that Space Control GmbH has a leading technology in 3D
control devices. In September 1998, the Company acquired the PC video
camera business of Connectix Corporation, a market leader in PC video
cameras. And most recently, in November 1999, Logitech spun off a new
company, SpotLife Inc., created to bring personal broadcasting capability
to all
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video camera users through the infrastructure of the internet. Two highly
respected venture capital firms, CMGI and Atlas Venture, joined Logitech in
funding the SpotLife initiative.
. Product Definition and Industrial Design Excellence. Logitech understands
the balance between features and complexity, functionality and style, and
price and performance. The Company believes that its ability to produce
world-class, user-centric, industrial designs through the integration of
in-house and external design resources sets it apart from competitors.
Through the years, Logitech has repeatedly received many awards worldwide
for product design and innovation, including the Hanover Seal of Quality
for design, German Design Innovations Red Dot, Chicago Athenaeum Museum of
Architecture and Design, the Premio SMAU show in Italy and others.
. Retail Brand and Distribution. The Company believes the Logitech brand name
and industrial designs are recognized worldwide as symbols of product
quality, innovation and price performance. The Company enjoys a strong and
growing brand presence in more than 15,000 retail outlets located in over
100 countries. The Company strongly believes that in the consumer market,
brand identity and brand awareness are important components of the purchase
decision, and that as competition in the PC market intensifies, the ability
to secure shelf space will increasingly become a competitive advantage.
Logitech's brand has enabled the Company to build an extensive retail
distribution network and obtain this critical shelf space. Today, the
strength of this brand is apparent in the OEM channel as well, where
systems manufacturers and integrators are choosing to bundle Logitech-
branded products with their offerings.
. Strength on the Desktop. Logitech has expanded its product portfolio to
encompass a broad range of interface devices that people use every day as
they work and play at their desktops. The Company's interface devices bring
together on the desktop a broad variety of products that individuals--
business people, home users, gamers and others--need to make their time on
the internet and time at the computer more productive, comfortable and
enjoyable. As a result, the Company is positioned to offer "one-stop
shopping" for accessories that have been designed to work seamlessly
together.
Logitech aggressively pursues several important aspects of today's desktop,
including the freedom and flexibility of cordless solutions, easy internet-
based visual communication and innovative solutions such as iTouch and
WebWheel--a combination of hardware, software and a special web site that
enhances Logitech's newest mice and keyboards by providing seamless
internet access and navigation.
. Volume Manufacturing Capability Resulting from Strong OEM Relationships.
The Company believes its established manufacturing capabilities are a
significant competitive advantage. For more than ten years, the Company has
been building a significant manufacturing presence in Asia where its ISO
9000-certified manufacturing facilities are currently producing over 60
million units per year. As a result, Logitech has been able to maintain
strong quality process controls and has realized significant cost
efficiencies. Manufacturing expertise extends beyond production to include
logistical support, just-in-time supply and process engineering.
Behind this world-class manufacturing capability and expertise are
Logitech's long-established relationships with large OEM customers. The
Company currently sells to the majority of the world's largest PC
manufacturers, as well as to most of the next layer of systems
manufacturers and integrators. Because Logitech's engineering and design
staff works collaboratively with OEM customers on the specifications for
future products, the Company believes its OEM relationships provide it with
valuable insight into the future of the computer marketplace and
technological trends.
. Global Resources. Logitech is a global company capable of drawing upon the
strengths of its various cultures and locations. With manufacturing
facilities in Asia, engineering staffs in the U.S., Asia and Europe, as
well as sales and marketing offices in major cities worldwide, the Company
has access to leading technology, markets, personnel and ideas from around
the world. The Company believes that by fostering a strong international
culture, it will be able to capitalize on the emergence of a worldwide PC
marketplace by meeting the needs of customers in many countries.
Business Strategy
Logitech's objective is to strengthen its leadership in the growing market
for human interface devices, linking PC users to the digital world where
people work, communicate, learn and play. At the same time, the company
intends to broaden this market through the introduction of additional
products and services which extend the information interface to emerging
areas such as the internet.
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While historically, growth in the computer industry has been tied to growth
in the installed base of PC users, this is no longer true. Equally
important today is how people use their computers--for Web surfing, digital
imaging, online gaming and other new applications--that drives market
growth. Logitech believes it can capitalize on this shift by creating
retail products that enable people to get the most from these activities.
Consequently, the Company is moving beyond the PC in another sense as well.
We believe that Logitech is well positioned to take full advantage of the
many opportunities in this growing marketplace.
In order to attain this objective, Logitech intends to pursue new areas for
growth while continuing to protect and build on the Company's current
strengths in the pointing device area. The new strategic directions follow
a three-pronged strategy:
. Expand the desktop presence
. Provide internet-focused devices and services
. Move beyond the PC platform
Expand the desktop presence
Logitech has already expanded beyond its traditional role as a provider of
pointing devices for the desktop into a leading brand for cameras, keyboards,
multimedia speakers and interactive game controllers. However, within the
category of mainstream pointing devices, there is also opportunity for
enhancement and expansion. This may include new technologies as well as
additional products. For example, the introduction this year of the WingMan
Force Feedback Mouse, featuring tactile feedback, marked a new dimension on the
gamer's desktop. Logitech expects to bring similar technology to the desktop.
Additional areas for growth and expansion within the pointing device category
include innovative industrial design aimed at addressing consumer demand for
features and esthetics, enhanced software functionality and new tracking
technologies. Beyond this, we believe the Company has the ability to introduce
an even greater number of desktop products that people touch and use every day,
and we are committed to exploring new areas and meeting new demands with
innovative devices as new applications arise.
Provide internet-focused devices and services
As the internet becomes integral to the user experience, we have begun to
deliver products that facilitate and enrich that experience. The introduction
of new pointing devices and keyboards integrating the iTouch(TM) and
WebWheel(TM) solutions was a first step in the process. By integrating
hardware, software and innovative web services, we have in essence transformed
our mice and keyboards into one-button portals to the internet. The Company
hopes to gain longer term potential incremental earnings, as potential industry
partners realize the inherent value of common keys that directly access a
location on the web. Additionally, SpotLife's destination web site offers easy
access to online live broadcasting. The Company believes it still has much to
gain from increasing internet functionality through all of its products,
enhancing web-based service offerings and exploring additional new business
models.
Move beyond the PC platform
Today, the computing environment that Logitech serves is the desktop. But
Logitech believes the interface to the digital world will move beyond the
desktop and beyond the PC--to the living room, to the kitchen, to wherever
people want to access information. Alternate platforms and means of delivering
information will serve these various environments, yet the need for an intuitive
interface will remain. Logitech intends to continue providing this interface.
This past year, Logitech began to explore opportunities in this area, announcing
that it is working with Universal Electronics to evaluate worldwide market
opportunities for gaming peripherals to serve the digital interactive cable and
satellite television markets.
Products
The Company operates in a single industry segment encompassing the design,
development, manufacture, marketing and support of computer interface devices.
All the Company's products share certain characteristics such as common
customers, common sales channels and common Company infrastructure requirements.
Logitech's interface devices include input and pointing devices such as corded
and cordless mice, trackballs, and keyboards; interactive gaming devices for
entertainment such as joysticks, gamepads and steering wheels;
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multimedia speakers and PC video cameras. In mid-fiscal 2001, the Company
expects to ship its 300 millionth mouse. The Company's product families are
summarized below.
. Mice. Logitech offers many varieties of mice, sold through both OEM and
retail channels. For example, the MouseMan(R) Wheel retail mouse, available
in both corded and cordless versions, is designed with curves, slopes and
buttons to better fit the user's hand and features three finger-operated
buttons, including a middle wheel button for easy scrolling and zooming,
plus a thumb button. The cordless version uses digital radio technology to
transmit data to the host computer, with no line-of-sight requirements that
characterize cordless peripherals based on infrared technology. The three-
button WingMan(R) Gaming Mouse was designed to meet the needs of
competitive gamers, and features an extremely fast report rate which gives
immediate on-screen response, while the WingMan(R) Force Feedback Mouse
offers a new level of realism to gamers through force feedback technology
licensed from Immersion Corporation. All premium retail models are bundled
with MouseWare(R) software, enabling users to program mouse buttons for
specific tasks (for example, double-click) and scroll through long
documents and web pages. In addition, the Company's newest mice include
WebWheel(TM) software for easy internet access and navigation. The Company
also sells both corded and cordless mice that are designed specifically for
OEM customers.
. Trackballs. Logitech produces several trackballs for the retail channel.
All corded and cordless models use the Company's patented Marble(R) optical
sensing technology, which enables reliable, accurate operation without the
need to regularly clean the device to prevent build-up of dust or grease.
In addition to desktop models, Logitech also offers TrackMan(R) Live!(TM)--
a cordless, radio controlled handheld trackball unit designed for computer-
based presentations.
. Keyboards. Logitech offers a variety of corded and cordless keyboards, from
the top of the line Cordless Desktop(TM) Pro, which combines a split design
cordless keyboard with a Cordless MouseMan(R) Wheel to the basic Deluxe
104, an affordable, attractive replacement unit. All premium keyboards
offer Logitech's innovative iTouch(TM) feature .
. Internet Video Cameras. Logitech's QuickCam(R) family of PC video cameras
features easy installation, and powerful software for enhanced visual
communication on the internet. QuickCam(R) Pro, the Company's premium
model, designed to enhance creative expression in communicating video and
still image content over the internet, features a high quality 640x480
(VGA) 24-bit (millions of colors) Charged Coupled Device (CCD). In the mid-
range, QuickCam(R) Web includes a built-in microphone. For cost-conscious
first-time users, QuickCam(R) Express combines affordability with a simple
design.
. Joysticks. Logitech's joysticks, designed for air combat, adventure, flight
simulator, racing and other games, are consistent industry award winners.
Each has a distinctive industrial design with a sculpted grip to fit the
user's hand. The WingMan(R) Force was developed with Touch Sense(R) force
feedback technology, licensed from Immersion Corporation, which uses high-
precision steel cable drivers to create a force feedback experience.
WingMan(R) Extreme(TM) Digital 3D, a second high-end joystick, features a
twist handle for precise rudder control.
. Gamepads. Logitech gamepads are designed with features similar to those
used with dedicated game platforms, and are for use with a wide variety of
titles. The Company has added motion-sensing technology, which turns body
motion into on-screen action, to its latest generation of gamepads. All
gamepads are designed to be comfortable for extended play periods.
. Steering Wheels. The Company's steering wheels offer smooth, precise
steering with a textured rubber wheel that provides a high degree of
comfort and control. The WingMan(R) Formula(TM) Force racing system
features a steel cable drive transmission based on Touch Sense(R) force
feedback technology.
. Multimedia Speakers. The Company's SoundMan(R) series of multimedia
speakers allows sound to reach a high level of quality. The SoundMan(R)
X2(TM) system has a compact subwoofer with satellite speakers which saves
desk space, yet delivers wall-shaking sound.
Technology
Logitech 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
computer or other intelligent
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host; and a suite of driver, utility and user interface software modules and web
sites. The Company believes these software modules and web support complete a
seamless user-centric solution for information input, access and control.
Logitech's products incorporate the following principal technologies:
. Sensing. The Company's sensors transform analog motion and images into
electronic signals. Logitech was the first to introduce optical sensing in
pointing devices. For example, all of Logitech's patented Marble(R)
products utilize an optical trackball sensor, greatly improving trackball
accuracy and durability. Similarly, Logitech's digital cameras utilize
optical sensors to detect colors, shapes and other image attributes and
convert these attributes into electronic signals. Through a variety of
sophisticated sensing and encoding techniques, Logitech has been able to
reduce the number of circuits required in its mouse products, thereby
lowering product manufacturing costs and improving reliability.
. Signal Processing Algorithms. Logitech engineers employ sophisticated
signal processing algorithms across many product lines to compute spatial
displacements, enhance color image quality and compress or format data for
transmission. For example, in the Company's internet video cameras, signal
processing algorithms are used for color extraction, image enhancement and
data compression.
. Power Management. The Company's products utilize advanced power management
including techniques to reduce power consumption when needed. Cables
connected to separate power supplies are inconvenient in the case of
products such as corded pointing devices, and impossible in the case of
cordless devices. Consequently, the Company believes low power consumption
is an essential product attribute for the consumer marketplace. In
addition, with up to 127 devices potentially drawing power from a single
USB port, the Company believes its power management expertise is
particularly important for the next generation of USB products.
. Cordlessness. The Company has been at the forefront in the development and
supply of low power radio frequency ("RF") technology for use over short
distances. The Company is focusing its current cordless development efforts
primarily on RF devices. Logitech believes the Bluetooth Cordless Standard
will be the enabler to a much wider acceptance of cordlessness in the
marketplace thus boosting the growth of companies active in this market
segment. Bluetooth is a new communication connectivity standard that will
enable computers, computer peripherals, and non-computer equipment to
communicate and exchange date cordlessly.
. Force Feedback. Force feedback adds a real physical sensation to computer
systems, enabling users to feel surfaces, bumps, vibrations, textures,
inertia, liquids, springs, and many other compelling physical phenomena.
This licensed technology is primarily used in joysticks and steering wheels
where game players can experience the actual physical sensation of being at
the controls of a fighter jet or at the wheel of a racing car. Feedback
technologies can be more subtle in pointing devices, allowing the
application to add "feel" to and therefore enrich the sensing experience.
. Software. The explosion of the internet is providing new technical
challenges and opportunities for the Company. The Company is focussing its
development efforts on the interface to the internet, communications over
the internet, and security on the internet, with products and services like
iTouch, video mail and webcasting. Software technologies such as object
based programming and tight integration between the hardware device and
application, enable easier to use interactions and internet service access.
Research and Development
The Company believes that continued investment in product research and
development is critical to its continued success. The Company believes that its
international structure provides certain advantages and synergies to its overall
product development efforts. Logitech's product research and development
activities are conducted at four engineering centers located in Fremont and San
Mateo, California, Romanel-sur-Morges, Switzerland and Hsinchu, Taiwan.
The location of the Company's Fremont and San Mateo, California facilities
allows the Company access to Silicon Valley's talent pool, particularly
important in the development of internet applications, software and video
technologies. In addition, this location in the midst of the world's leading
technology market enables the Company to compile market intelligence to define
and position products and develop key strategic alliances.
Logitech's Swiss engineering center provides the Company with advanced
sensing and cordless technologies. In addition, the Swiss center is a convenient
point for gaining access to leading European technologies. Logitech has been
successful in recruiting and retaining top engineering graduates from leading
Swiss universities because it is one of the few computer technology companies in
Switzerland.
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Through its Taiwanese subsidiary, the Company has established access to key
Asian markets, engineering resources and high-tech manufacturing. Taiwan is a
world leader in manufacturing and engineering. In particular, Taiwan is a world
leader in the design and manufacture of semiconductors, notebook computers,
scanners, monitors and related products, and possesses a concentration of firms
that specialize in advanced plastic injection blow molding and tooling.
Moreover, the common language of Taiwan and China facilitates the transfer of
products from the Company's launch site in Taiwan to its high volume
manufacturing site in China.
The Company is continually developing new products and enhancements to
existing products. Across all product lines, the Company is devoting
significant research and development resources to extending its cordless and
video capabilities.
The 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 2000, 1999
and 1998 were $31.7 million, $31.4 million, and $27.8 million. The Company
expects to continue to devote significant resources to research and development
to sustain its competitive position.
Marketing, Sales and Distribution
The primary end-user markets for Logitech mice, trackballs and keyboards
are 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, gamepads and steering wheels, is consumers. The
Company's end user markets for its PC video cameras are SoHo users, corporate
buyers and consumers. Logitech's primary end user markets are in North America,
Europe and Asia. However, it also markets its products in Australia, Latin
America and other regions.
Logitech builds awareness of its products and brand through targeted
advertising, public relations efforts, in-store promotions and merchandising, a
world wide web site and other efforts. It also develops knowledge of its end
users through customer feedback and market research, including focus groups,
product registrations, end user questionnaires, multi-client surveys and other
techniques. In addition, manufacturers of PCs and other products also receive
customer feedback and perform end user market research, which sometimes result
in specific requests to the Company for specific products, features or
enhancements.
Logitech sells through many distribution channels, including OEMs,
distributors and regional and national retail chains. In addition, the Company
supports retail channels with distribution centers located in the United States,
Europe and Asia. These centers perform final configuration of products and
product localization with local language manuals, packaging, software diskettes
and power plugs. During fiscal 2000, Logitech added electronic commerce to its
distribution mix in the U.S. and is currently launching e-commerce capabilities
in several European countries.
Logitech sells to large OEM customers through a direct sales force and
supports small OEM customers through distributors. The Company counts the
majority of the world's largest PC manufacturers among its customers. In retail
channels, Logitech's direct sales force sells to distributors and resellers.
Its distributor customers typically resell products to retailers, value-added
resellers, and system integrators with which Logitech does not have a direct
relationship. These distributors in the U.S. include Ingram Micro Inc.,
Merisel, Inc. and Tech Data Corporation, and in Europe include Banque
Magnetique, Computer 2000 and Ingram Micro.
Logitech also sells to major retail chains, where it typically enjoys
access to significant shelf space. These chains in the U.S. include Best Buy
Co., Inc., CompUSA, Inc., Office Depot, Inc., Staples, Inc., and Circuit City,
and in Europe include Carrefour, Dixons Stores Group PLC and Vobis. No single
customer accounts for more than 10% of the Company's net sales. Logitech also
sells through the top online etailers, which include Amazon.com, Buy.com, CDW,
Insight, Micro Warehouse and others.
The loss of one or more of the Company's OEM customers, distributors or
major resellers could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, due to its sales to
large OEMs, distributors and high volume resellers, the Company maintains
individually significant receivable
9
<PAGE>
balances with large customers. As of March 31, 2000, three customers represented
23.6% 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.
Through its operating subsidiaries, the Company maintains sales offices or
sales representatives in 20 countries, and throughout the United States.
Net sales to unaffiliated customers by geographic region were as follows:
Year ended March 31,
------------------------------------
2000 1999 1998
-------- -------------- --------
(In thousands)
Europe............................. $259,486 $195,913 $151,019
North America...................... 253,502 196,778 184,232
Far East........................... 102,676 78,050 70,858
-------- ---------- --------
Net sales.......................... $615,664 $470,741 $406,109
======== ========== ========
Customer Service and Technical Support
Through its operating subsidiaries, the Company maintains customer service
and technical support operations in the United States, Europe, Asia and
Australia. Customer service and technical personnel provide support services to
retail purchasers of products via telephone, facsimile and the Logitech web
site. This site is designed to expedite overall response time while minimizing
the resources required for effective customer support. In general, OEMs provide
customer service and technical support for their products, including components
purchased from suppliers such as Logitech.
The Company provides a one to five year warranty on its branded retail
products. As is typical in the PC industry, the Company frequently grants
customers limited rights of return with respect to retail purchase or unsold
inventories in exchange for new purchases, as well as price protection. There
can be no assurance that allowances will be sufficient or that any future
returns or price changes will not have a material adverse effect on operating
results. The short product life cycles of the Company's products and the
difficulty in predicting future sales increase the risk that new product
introductions, price reductions by the Company or its competitors or other
factors affecting the PC industry could result in significant product returns.
Manufacturing
The Company's manufacturing operations consist principally of final
assembly and testing. Logitech's high-volume manufacturing is located in Suzhou,
China, where labor and overhead costs are significantly lower than in North
America, Europe and Taiwan. The Suzhou facilities are designed to allow
significant production growth as well as flexibility in responding to changing
demands for the Company's products. The Company continues to focus on improving
the efficiency at the Suzhou facilities, including the implementation of total
quality management and total employee involvement programs.
New product launches, value-added manufacturing, process engineering,
commodities management, logistics, quality assurance and operations management
are centralized in Hsinchu, Taiwan. Components are manufactured to the
Company's specifications by vendors in Asia, the United States and Europe.
Logitech also utilizes subcontractors to supplement internal capacity and to
reduce volatility in production volumes. In addition, certain products,
including keyboards and some gaming devices, are manufactured by third-party
suppliers to the Company's specifications. In such cases, the Company performs
final testing and product quality assurance prior to shipment. Retail product
localization with local language manuals, packaging, software diskettes and
power plugs is performed at distribution centers in the United States, Europe
and Asia.
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, sensors,
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
10
<PAGE>
experienced supply shortages and fluctuation in component prices. In the
December 1999 quarter, the Company experienced shortages in it supply of sensors
for its internet video cameras. These shortages limited sales growth of internet
video cameras in the December 1999 quarter. In addition, the Company is exposed
to the possibility of a worldwide shortage of semiconductors as a result of an
imbalance of worldwide demand and worldwide manufacturing capacity. 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, 2000, the Company's operating subsidiaries had a total of
4,350 regular and temporary employees, of whom 240 were in research and
development, 3,460 were in manufacturing and distribution, 320 were in
marketing, sales and support, and 330 were in administration. Of the total
number of employees, 345 were in North America, 245 were in Europe and 3,760
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, including its Chief Executive
Officer, Guerrino De Luca, 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. 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, for whom competition 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 in OEM and performance enhancements of
competing products in retail. 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.
The Company competes primarily with Creative Technology, Ezonics
Corporation, Guillemot Corporation, Intel, Interact Multimedia,
Kensington/Advanced Gravis, KYE/Mouse Systems, Labtec Inc., Microsoft, Mitsumi,
Philips, Primax, Saitek Industries Ltd., and Xirlink Inc.
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, the Company's chief
competitors are Microsoft in the market for pointing devices, gaming devices,
and keyboards and Intel in the market for video cameras.
In the December 1999 quarter, Microsoft began shipping two new mouse
products that are based on a technology that replaces the mouse ball with an
optical sensor. These products have helped their market share in the U.S. The
Company expects to directly respond to Microsoft with optical offerings in
calendar 2000, and will continue to focus on the advantages of its cordless
offerings to the end user. Also, Microsoft's expanded keyboard product line,
which began shipping in the September 1999 quarter, has improved their market
share in the U.S. Microsoft is also a leading producer of operating systems and
applications with which the Company's pointing and gaming devices are designed
to operate. As a result of its position, Microsoft may be able to make
improvements in the funcionality of its pointing and gaming devices to
correspond with ongoing modifications and enhancements to its operating systems
and software applications in advance of the Company. This ability could provide
Microsoft with significant lead time advantages for product development. In
addition, Microsoft may be able to offer pricing advantages on bundled hardware
and software products that the Company is not able to offer.
11
<PAGE>
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, significant price
reductions in OEM and performance enhancements of competing products in retail.
This 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.
ADDITIONAL RISK FACTORS THAT MAY AFFECT FUTURE PERFORMANCE
In addition to other factors identified in this Form 20-F, 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 forward looking statements relating to its industry and
business.
Potential Fluctuations in Future Operating Results
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-party product manufacturers; the availability of key
components; seasonality; 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.
12
<PAGE>
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 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.
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 of retailers and distributors. 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,
which could lead to reduced orders by these customers in future periods. As a
result, historical net sales may not be indicative of future net sales.
Overstocking by 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 licenses or acquires
from others. The Company may find it necessary or desirable in the future to
obtain licenses or other rights relating to one or more of its products or to
current or future technologies. There is no assurance that such licenses or
other rights will be available on commercially reasonable terms, or at all.
13
<PAGE>
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 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.
Risks Associated with International Operations
Substantially all of the Company's manufacturing operations are located in
Suzhou, China and Hsinchu, Taiwan. These operations could be severely impacted
by economic or political instability in China, including instability which may
occur in connection with a change in leadership in China, by evolving
interpretation and enforcement of legal standards, by strains on Chinese
transportation, communications, trade and other infrastructures related to the
rapid industrialization of an agrarian economy, by conflicts, embargoes,
increased tensions or escalation of hostilities between China and Taiwan, and by
other trade customs and practices that are dissimilar to those in the United
States. Interpretation and enforcement of China's laws and regulations
continues to evolve and the Company expects differences in interpretation and
enforcement to 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.
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 U.S. subsidiary has operational headquarters in Fremont, California
in a leased building comprising approximately 95,600 square feet. This facility
is also occupied by Logitech's Americas headquarters, including research and
development, product marketing, sales management, technical support and
administration. The Company's Fremont lease expires in March 2006. The
Company's U.S. subsidiary also leases space located in San Mateo, California,
consisting of approximately 8,500 square feet for additional research and
development. This lease expires in September 2001.
Logitech's Europe headquarters are in Romanel-sur-Morges, Switzerland. This
Company-owned facility comprises 33,300 square feet and includes research and
development, product marketing, sales management, technical support,
administration and certain Logitech group activities including finance.
Logitech's Asia headquarters are in a Company-owned 112,000 square foot
facility in Hsinchu, Taiwan, and includes mechanical engineering, new product
launches, value-added manufacturing, process engineering, commodities
management, logistics, quality assurance, marketing, sales and administration.
The Hsinchu facility also serves as a distribution center for the Company.
Logitech's high volume manufacturing is located in Suzhou, China, comprised of a
company-owned 253,716 square foot building and a building comprised of
approximately 91,500 square feet and is subject to a lease due to expire in July
2003.
14
<PAGE>
Logitech has major distribution centers in Union City, California, Nijmegen,
the Netherlands and Hsinchu, Taiwan. The Union City facility is 86,500 square
feet and is being leased by the Company until September 2003. The distribution
center in Nijmegen is comprised of approximately 7,150 square feet and is
subject to a lease due to expire in July 2005. The Company believes that its
current facilities will be adequate for its needs for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
In December 1997, Logitech Inc. filed suit against KYE Systems Corp., KYE
International Corp. and Mouse Systems Corp. in the United States Court, Eastern
District of Texas, Texarkana Division, seeking damages and equitable relief
based on allegations of patent infringement. In February 1998, Mouse Systems
Corporation filed suit against Logitech Inc. in the United States District Court
for the Northern District of California, seeking damages and equitable relief
also based on allegations of patent infringement. In fiscal 2000, all of these
actions were dismissed with predjuce with no material effect on Logitech's
financial position or results of operations. In addition, in late 1998, a
Company's subsidiary in Suzhou, China was sued in China for patent infringement
involving certain of the Company's mouse products. The Company believes the
lawsuit is without merit and intends to defend against it vigorously. However,
there can be no assurance that the defense of this action will be successful, or
that any judgment in or settlement of this lawsuit would not have a material
adverse impact on the Company's business, financial position 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. Through its U.S. and China subsidiaries, the Company is currently
involved in several other pending lawsuits with respect to patent infringement
claims by third parties. The Company believes that all of these pending
lawsuits are without merit and intends to defend against them vigorously. There
can be no assurance, however, that the defense of any of these actions will be
successful, or that any judgment in or settlement of any of these lawsuits would
not have a material adverse impact on the Company's business, financial
condition and results of operations.
Pending and future litigation involving the Company, whether as plaintiff or
defendant, regardless of outcome, may result in significant diversion of effort
by the Company's technical and management personnel, 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. In
addition, 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.
15
<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, including
shares represented by ADSs, as of June 1, 2000 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) 429,620 10.3%
All directors and executive officers as a group (10 persons) 526,274 12.6%
</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 that are currently exercisable or exercisable
within 60 days after June 1, 2000 are deemed to be issued and to be
beneficially owned by the person holding such options or warrants for the
purpose of computing the percentage ownership of such person but are not
treated as issued for the purpose of computing the percentage ownership of
any other person.
(2) Percentage ownership is calculated based on 4,167,812 registered shares
issued and outstanding, excluding 20,632 registered shares held in treasury.
(3) Includes 204,550 registered shares registered in the name of Sylviane Borel
(Mr. Borel's wife). Mr. Borel disclaims beneficial ownership of the
registered shares registered in the name of his wife.
16
<PAGE>
ITEM 5. NATURE OF TRADING MARKET
Registered Shares
The Company's registered shares are listed and principally traded on the Swiss
Exchange, where prices are expressed in Swiss francs. The table below presents,
for the 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 1996:
First quarter................................ 43.00 36.50 37.35 31.70
Second quarter............................... 68.00 41.50 58.83 35.90
Third quarter................................ 64.00 55.50 55.46 48.10
Fourth quarter............................... 72.50 52.00 60.94 43.71
Fiscal 1997:
First quarter................................ 80.00 66.50 63.98 53.18
Second quarter............................... 79.50 63.00 63.32 50.18
Third quarter................................ 97.25 64.50 72.63 48.17
Fourth quarter............................... 149.50 95.25 103.96 66.24
Fiscal 1998:
First quarter................................ 138.00 120.50 94.39 82.42
Second quarter............................... 144.00 104.15 99.48 71.95
Third quarter................................ 135.00 111.50 92.34 76.27
Fourth quarter............................... 121.50 102.75 79.82 67.50
Fiscal 1999:
First quarter................................ 120.00 100.75 79.21 66.50
Second quarter............................... 107.50 65.15 77.86 47.17
Third quarter................................ 88.00 55.75 64.07 40.59
Fourth quarter............................... 102.50 76.60 69.38 51.86
Fiscal 2000:
First quarter................................ 114.50 94.00 73.61 60.43
Second quarter............................... 118.00 106.13 78.55 70.65
Third quarter................................ 242.50 114.50 152.23 71.88
Fourth quarter............................... 625.00 225.00 375.83 135.30
</TABLE>
The Swiss Exchange is a private organization comprised of 89 members. As of
April 30, 2000, 242 Swiss companies and 170 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.
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American Depositary Shares
On March 27, 1997, the Company consummated a public offering in the U.S. of
400,000 registered shares, represented by 4,000,000 ADSs. On April 25, 1997,
the Company sold an additional 60,000 registered shares, represented by 600,000
ADSs, pursuant to an option granted to the underwriters in the offering to cover
over-allotments. Each ADS represents one-tenth of one registered share. As of
June 1, 2000, there were 4,188,444 registered shares issued and outstanding held
by 4,445 holders of record. According to the records of the Bank of New York
(the Depositary), as of June 1, 2000, there were approximately 4,863,400 ADSs
issued and outstanding under the Deposit Agreement.
The ADSs are traded on the Nasdaq National Market. The table below presents
the high and low closing sales prices for ADSs on the Nasdaq National Market.
High Low
------ ------
Fiscal 1997:
Fourth quarter (March 27 to March 31)........... $ 8.13 $ 8.10
Fiscal 1998:
First quarter................................... $ 9.50 $ 8.19
Second quarter.................................. $ 9.44 $ 7.00
Third quarter................................... $ 9.38 $ 7.50
Fourth quarter.................................. $ 8.38 $ 6.69
Fiscal 1999:
First quarter................................... $ 7.88 $ 6.57
Second quarter.................................. $ 7.19 $ 4.63
Third quarter................................... $ 6.25 $ 4.25
Fourth quarter.................................. $ 7.07 $ 5.63
Fiscal 2000:
First quarter................................... $ 7.63 $ 6.13
Second quarter.................................. $ 8.50 $ 6.88
Third quarter................................... $15.38 $ 7.94
Fourth quarter.................................. $37.50 $13.74
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
As a Swiss corporation, the Company is subject to certain requirements not
generally applicable to corporations organized in United States jurisdictions.
Among other things, the issuance of capital stock by the Company generally must
be submitted for approval at a general meeting of shareholders. In addition,
the issuance of capital stock is generally subject to shareholder preemptive
rights, except to the extent that such preemptive rights have been excluded or
limited by the shareholders.
U.S. securities laws may restrict the ability of U.S. persons who hold ADSs to
participate in certain rights offerings or share or warrant dividend
alternatives which the Company may undertake in the future in the event the
Company is unable or chooses not to register such securities under the U.S.
securities laws and is unable to rely on 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.
18
<PAGE>
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 1997 Convention (entered into force on December 1997) between the
United States of America and the Swiss Confederation for the Avoidance of Double
Taxation with Respect to Taxes on Income (the "Treaty"), both of which are
subject to change (or changes in interpretation), possibly with retroactive
effect.
For purposes of the Treaty and the Internal Revenue Code of 1986, as amended
(the "Code"), United States Holders of ADSs are treated as the owners of the
registered shares corresponding to such ADSs. Accordingly, the Swiss tax
consequences discussed below also generally apply to United States holders of
registered shares.
Swiss Taxation
Gain on Sale
Under present Swiss law, a holder of registered shares or ADSs who (i) is a
non-resident of Switzerland, (ii) during the taxable year has not engaged in a
trade or business through a permanent establishment within Switzerland and (iii)
is not subject to taxation by Switzerland for any other reason, will be exempted
from any Swiss federal, cantonal or municipal income or other tax on gains
realized during the year on the sale of registered shares or ADSs.
Stamp, Issue and Other Taxes
Switzerland generally does not impose stamp, registration or similar taxes on
the sale of registered shares or ADSs by a holder thereof unless such sale or
transfer occurs through or with a Swiss securities dealer (as defined in the
Swiss Stamp Duty Law).
Withholding Tax
Under present Swiss law, any dividends paid in respect of registered shares
will be subject to the Swiss Anticipatory Tax at the rate of 35%, and the
Company will be required to withhold tax at such rate from any dividend payments
made to a holder of registered shares. Such dividend payments may qualify for
reduction of or refund of the Swiss Anticipatory Tax by reason of the provisions
of a double tax treaty between Switzerland and the country of residence or
incorporation of a holder, and in such cases such holder will be entitled to
claim a refund of all or a portion of such tax in accordance with such treaty.
The Treaty provides for a mechanism whereby a United States resident or United
States corporations can generally seek a refund of the Swiss Anticipatory Tax
paid on dividends in respect of registered shares, to the extent such
withholding exceeds 15%. A United States corporation that holds more than 10%
of the share capital of a Swiss company can seek a refund of the Swiss
Anticipatory Tax paid on dividends to the extent such withholding tax exceeds 5%
under the double tax treaty.
19
<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.
<TABLE>
<CAPTION>
Year ended March 31,
-----------------------------------------------------------------------
2000 1999 1998 1997 1996
------------ ------------- ------------- ------------- -------------
(In thousands, except share and per share amounts)
<S> <C> <C> <C> <C> <C>
Consolidated statement of operations data:
Net sales........................................... $ 615,664 $ 470,741 $ 406,109 $ 430,007 $ 368,967
Gross profit........................................ 206,695 162,723 132,843 139,151 109,703
Operating expenses:
Marketing and selling.............................. 102,957 85,350 68,813 71,014 59,654
Research and development........................... 31,666 31,378 27,774 26,481 20,705
General and administrative......................... 31,102 23,625 19,944 20,380 19,553
Acquired in-process research and development (1)... -- 6,200 -- -- --
------- ------- ------- ------- ------
Total operating expenses............................ 165,725 146,553 116,531 117,875 99,912
------- ------- ------- ------- ------
Operating income.................................... 40,970 16,170 16,312 21,277 9,791
Loss on sale of product line (2).................... -- (7,272) (3,174) -- --
Net income.......................................... 30,044 7,137 15,456 21,060 8,193
Net income per share (4):
Basic.............................................. $ 7.55 $ 1.85 $ 4.09 $ 6.50 $ 2.51
Diluted............................................ $ 6.87 $ 1.79 $ 3.91 $ 6.18 $ 2.50
Shares used to compute net income per share (4):
Basic.............................................. 3,976,990 3,867,220 3,776,464 3,240,652 3,260,058
Diluted............................................ 4,375,994 3,982,674 3,954,114 3,407,392 3,281,232
Cash dividend per share (3)(4)...................... $ -- $ -- $ -- $ 0.48115 $ --
</TABLE>
<TABLE>
<CAPTION>
March 31,
----------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ----------- ----------- ----------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Consolidated balance sheet data:
Cash and cash equivalents........................... $ 49,426 $ 43,251 $ 72,376 $ 38,504 $ 28,564
Total assets........................................ 334,077 294,489 208,479 216,423 181,321
Long-term debt, net of current maturities........... 2,934 3,624 3,031 3,188 4,768
Shareholders' equity................................ 179,969 139,754 132,734 111,691 71,438
</TABLE>
1) In connection with acquisition of Connectix Corporation's PC video camera
business, the Company recorded a one-time charge of $6.2 million for
acquired in-process research and development.
2) In fiscal 1998, the Company sold its scanner product line to Storm
Technology Inc. and recorded a $3.2 million loss on the sale. In 1999, the
Company wrote off $5.8 million related to a convertible note and common
stock investment in Storm made in connection with the sale. The additional
expenses in 1999 primarily relate to costs to conclude certain obligations
exceeding management's estimate made in 1998.
3) Dividends were declared in Swiss francs and translated into U.S. dollars.
4) The Company completed a two-for-one stock split which was effected in the
form of a stock dividend and distributed on July 5, 2000 payable to
stockholders of record as of July 4, 2000. All references to share and per-
share data for all periods presented have been adjusted to give effect to
this two-for-one stock split.
20
<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 1996.............................. 1.170 1.117 1.232 1.189
Fiscal 1997.............................. 1.296 1.192 1.489 1.438
Fiscal 1998.............................. 1.460 1.535 1.385 1.522
Fiscal 1999.............................. 1.437 1.515 1.374 1.478
Fiscal 2000.............................. 1.560 1.663 1.478 1.663
</TABLE>
(1) Represents the average of the Noon Buying Rates on the last day of each
month during the relevant period.
21
<PAGE>
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This annual report to shareholders contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these statements as a result of certain
factors, including those set forth below and in the subsection "Additional Risk
Factors That Could Affect Operating Results" in Item 1.
Overview
Logitech designs, manufactures and markets human interface devices and
supporting software which often serve as the primary physical interface between
users and their personal computers and the internet. The Company's products
include corded and cordless mice, optical trackballs, keyboards, joysticks,
gamepads, racing systems, internet video cameras, and multimedia speakers.
The Company sells its products through two primary channels, original
equipment manufacturers ("OEMs") and a network of retail distributors and
resellers ("retail"). Products sold to OEMs, principally pointing devices, are
generally resold to end users bundled with new PCs. Sales to OEMs as a
percentage of total net sales can vary significantly and have ranged from 24% to
45% on a quarterly basis over the past three fiscal years.
The Company was founded in Switzerland in 1981, and in 1988 listed its
shares in an initial public offering in Switzerland. In March 1997, the Company
sold 400,000 registered shares from treasury in a U.S. initial public offering
in the form of 4,000,000 American Depository Shares ("ADS"), and listed the ADSs
on the Nasdaq National Market System. The Company maintains its operational
headquarters through its U.S. subsidiary in Fremont, California, with regional
headquarters through local subsidiaries in Romanel-sur-Morges, Switzerland and
Hsinchu, Taiwan. In addition, Logitech has manufacturing operations in China,
with distribution facilities in the United States, Europe and Asia.
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,
-------------------------------------
2000 1999 1998
-------- --------- ---------
<S> <C> <C> <C>
Net sales........................................................... 100.0% 100.0% 100.0%
Cost of goods sold.................................................. 66.4 65.4 67.3
------ ------- -------
Gross profit........................................................ 33.6 34.6 32.7
Operating expenses:
Marketing and selling............................................ 16.7 18.1 16.9
Research and development......................................... 5.1 6.8 6.9
General and administrative....................................... 5.1 5.0 4.9
Acquired in-process research and development..................... -- 1.3 --
------ ------- -------
Operating income.................................................... 6.7 3.4 4.0
Interest income (expense), net...................................... (.1) .2 .4
Loss on sale of product line........................................ -- (1.5) (.8)
Other income (expense), net......................................... (.5) (.3) .5
------ ------- -------
Income before income taxes.......................................... 6.1 1.8 4.1
Provision for income taxes.......................................... 1.2 .3 .3
------ ------- -------
Net income.......................................................... 4.9% 1.5% 3.8%
====== ======= =======
</TABLE>
22
<PAGE>
Year Ended March 31, 2000 Compared to Year Ended March 31, 1999
Net Sales
Net sales for the year ended March 31, 2000 increased 31% to $615.7 million.
This growth was shared across all product categories, but primarily came from
the Company's keyboard and video products, as well as increases in the Company's
cordless mouse offerings.
Retail sales grew by 43%. This growth was shared across all product
categories. Retail sales of the Company's traditional pointing devices, which
include mice and trackballs, grew by 10%, while unit volumes grew 18%. This
growth was driven by a 121% increase in sales of the Company's cordless mice.
Even with this growth, mice sales represented only 39% of the Company's total
retail revenue for fiscal 2000, compared to 50% last year, reflecting the
Company's expanded retail product offerings. Sales of keyboard products
increased by 172% over the same period last year, while unit volumes more than
doubled. The Company added a renewed line of cordless desktops in the third
quarter. In the fast growing internet video camera business, retail sales grew
by 130% over last year, with unit volumes almost tripling. The video camera
increases occurred despite the loss of some shelf space in stores in the third
quarter of fiscal 2000 due to product transition issues related to two improved
video products. The Company previously introduced its video products in the
third quarter of fiscal 1999, including products resulting from the integration
of the QuickCam business acquired in September 1998. Sales of interactive
gaming products increased 15% over last year, with unit volumes increasing 48%.
Average selling prices have declined from last year, reflecting the Company's
new entry level offerings and a large sell-in of a new line of high end
joysticks and racing systems last year. The sales and volume increases occurred
despite declines in the overall U.S. PC gaming market, particularly over the
last two quarters. While there are a number of potential causes for declines in
the overall market, such as the lack of revolutionary new controllers and the
absence of exciting new games, the impact is being felt by all competitors in
this market. Logitech's volume increases, combined with the decline in the
overall market, have resulted in increased market share in most interative
gaming product categories, and for joysticks in particular.
OEM sales grew by 7% compared to last year, with unit volume increasing 25%.
The impact of the volume increase on net sales was partially offset by price
reductions in pointing devices due to price pressures in the OEM market. This
year's growth was driven principally by the Company's internet video cameras
which, beginning in the fourth quarter, are being bundled by Compaq with most of
their Presario(R) models sold in the North American market.
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, 2000 increased 27% to $206.7 million.
Gross profit as a percentage of sales decreased slightly from 34.6% to 33.6%.
This decrease principally reflects the impact of pricing pressures in the
Company's OEM mouse offerings. The price pressures in the OEM mouse business led
to a significant margin decline in this area compared to last year. While the
Company continues to achieve cost reductions offsetting much of the impact of
lower prices, the price reductions for some of the Company's largest customers
have outpaced the cost reduction efforts. The lower overall OEM mouse margins
were partially offset by the impact of increased sales of higher margin internet
video cameras in the OEM channel. Retail gross profit as a percentage of sales
remained flat compared to last year.
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, 2000 increased 21% to $103 million. This
increase is directly related to the Company's increased sales performance and
marketing initiatives aimed at strengthening the Company's retail presence. As
a percentage of sales, marketing and selling costs decreased from 18.1% to
16.7%. The Company has increased other marketing costs in new product areas,
including retail keyboards, internet video cameras and cordless mice.
23
<PAGE>
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. Excluding $1.4 million in development
efforts relating to Spotlife Inc., Logitech's spin-off focused on enhancing
video communications using the internet infrastructure, research and development
expense for the year ended March 31, 2000 decreased 4% to $30.3 million. As a
percentage of sales, research and development decreased from 6.8% to 4.9%. This
decrease was primarily related to lower project development costs. The Company
has shortened the time of new product development activities and reduced the
expenses required to bring products to market. The Company continues its
development efforts across the entire spectrum of its product portfolio, with
initiatives in new product development as well as cost reductions on existing
products.
General and Administrative
General and administrative expense 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, 2000 increased 32% to $31.1 million, or 5.1% of net sales,
compared to $23.6 million, or 5.0% of net sales in 1999. This increase was
primarily due to increased headcount, amortization of goodwill and intangible
assets, and higher costs related to intellectual property litigation.
Interest Income (Expense), Net
Net interest expense for the year ended March 31, 2000 was $.2 million
compared to net interest income of $.9 million in 1999. The decline was the
result of a decrease in the average balances of interest bearing cash and cash
equivalents, partially offset by a decrease in the average balance of short-term
debt. The Company's short-term debt peaked in the third and fourth quarters of
fiscal 1999 with the financing of working capital needs and part of the
Company's acquisition of the Connectix business. The Company has been reducing
short-term debt and increasing cash balances since then, particularly in the
last half of fiscal 2000, out of cash generated from operations.
Other Expense, Net
Other expense for 2000 was $3.3 million, compared to $1.4 million last year.
This increase was primarily due to higher losses in investments accounted for
under the equity method and a write-off of an investment accounted for under the
cost method. This was partially offset by the gain on sale of the Company's
touchpad technology and net foreign exchange gains in fiscal 2000 compared to
losses in fiscal 1999.
Provision for Income Taxes
The provision for income taxes consists of income and withholding taxes and is
based on factors such as management's expectations as to payments of withholding
taxes on amounts repatriated through dividends, the jurisdictions in which
taxable income and losses are generated, changes in local tax laws and changes
in valuation allowances based upon the likelihood of realizing deferred tax
assets. The provision for income taxes for the year ended March 31, 2000
increased to $7.5 million, representing a 20% effective tax rate, from $1.3
million, representing a 15% effective tax rate in 1999. The Company's effective
tax rate is dependent on achieving expected income levels in a number of
jurisdictions. If the Company is unable to achieve expected income levels in
those jurisdictions, the Company's effective tax rate could change
significantly.
Year Ended March 31, 1999 Compared to Year Ended March 31, 1998
Net income for the year ended March 31, 1999 was $7.1 million compared to
$15.5 million in 1998. During 1999, net income was impacted by two non-
recurring charges, an in-process research and development charge of $6.2 million
(before tax) which was part of the Company's acquisition of the QuickCam(R)
internet video camera business of Connectix Corporation, and a $5.8 million
(before tax) write-off of a note receivable and equity investment in Storm
Technology. Excluding the two non-recurring charges, net income for the year
ended March 31, 1999 was $17.3 million.
Net Sales
Net sales for the year ended March 31, 1999 increased 16% to $470.7 million.
Excluding the discontinued scanner product line, net sales increased 28%. This
growth was shared across all product categories, but primarily
24
<PAGE>
from the Company's new keyboard and video products, as well as increases from
both the Company's cordless wheel-enhanced mice and OEM corded mice.
Retail sales grew by 43% excluding the discontinued scanner product line. The
Company's traditional retail pointing device sales, which include mice and
trackballs, grew by 13%. The strength of these sales is due to the Company's
cordless mouse offerings and trackball product line. While cordless products
have traditionally been well received in Europe, the Company began to see
increased acceptance in the U.S. as well. Sales of gaming products, which
include joysticks, steering wheels and gamepads, grew by 26% over last year. In
the second half of the fiscal year, sales of gaming products increased by 64%,
reflecting the expanded and revitalized products introduced during the third
fiscal quarter. Keyboard products were a source of very strong growth, as the
Company's market share in the U.S. increased from 0% to over 20% during the last
15 months. The Company also saw significant market share gains in Europe.
Sales of pointing devices to OEM customers grew by 6%, with unit volume
increasing 28%. This increase is a result of increased market share, partially
offset by declining average selling prices.
The Company introduced its video products in the third fiscal quarter,
including the integration of the QuickCam business acquired in September 1998.
Video sales in the fourth quarter grew by 48% over the Christmas quarter of
1999. This improvement over a traditionally high volume selling season reflects
both the continued rapid growth in the overall market as well as acceptance of
the Company's video products.
Gross Profit
Gross profit for the year ended March 31, 1999 increased 22% to $162.7
million. Gross profit as a percentage of sales improved from 32.7% to 34.6%.
The improvement in overall gross margin percentage reflects both a favorable
sales mix between the retail and lower margin OEM channels and the divestiture
of the low-margin scanner product line. The Company has also been able to
continue to achieve product cost reductions.
However, the price pressures in the OEM business led to a significant margin
decline in this area compared to last year. While the Company continued to
achieve cost reductions offsetting much of the impact of lower prices, the price
reductions for some of the Company's largest customers have outpaced the cost
reduction efforts. In the retail channel, the product mix shifted in the last
half of the fiscal year towards lower margin retail products such as keyboards
and PC internet video cameras. This reflects the Company broadening of the
overall retail product offering.
Marketing and Selling
Marketing and selling expense for the year ended March 31, 1999 increased 24%
to $85.4 million. This increase is directly related to the Company's increased
sales performance. As a percentage of sales, marketing and selling costs
increased from 16.9% to 18.1%. Marketing costs reflect significant investments
in channel marketing, brand awareness through refreshed packaging and associated
marketing materials, and advertising. The Company also continued to improve the
quality of its web site and strengthened e-commerce capabilities. In April
1999, the Company's e-commerce web site was unveiled, where customers can
purchase all Logitech products online.
Research and Development
Research and development expense for the year ended March 31, 1999 increased
13% to $31.4 million. As a percentage of sales, research and development
decreased slightly from 6.9% to 6.8%. This decline occurred despite the
increased development in the gaming device area and the PC video camera area
prior to the launch of new products in these areas. The Company introduced a
number of new gaming devices and video cameras during the Christmas season.
Increased costs in the above areas were offset by the elimination of development
costs for the scanner product line sold in December 1997.
General and Administrative
General and administrative expense for the year ended March 31, 1999 increased
18% to $23.6 million, or 5.0% of net sales, compared to $19.9 million, or 4.9%
of net sales in 1998. This increase was primarily due to increased headcount,
amortization of goodwill and intangible assets, and higher legal costs.
25
<PAGE>
Acquired In-Process Research and Development
In September 1998, the Company acquired the PC video camera business of
Connectix Corporation for $26.2 million (including closing and other costs).
Connectix's QuickCam(R) brand was a market leader in PC video cameras, a market
that was starting to experience rapid growth. This acquisition was consistent
with the Company's intention to enter the PC video camera market, and its
development efforts in that area. The Connectix business has been combined with
the Company's video division to offer a complete line of PC internet video
cameras.
In connection with the acquisition, the Company recorded a one-time charge of
$6.2 million for acquired in-process research and development. At the time of
the acquisition, research and development of several video camera products and a
new version of the related software application were in process. The future
hardware development included integrated circuit design as well as system
integration. The future software development included video-based software
applications to increase functionality, make user interface easier, and to
integrate third party applications. This development was completed in fiscal
1999 and 2000, and revenue from the in-process products began in fiscal 2000 and
are ahead of original projections.
Interest Income (Expense), Net
Net interest income for the year ended March 31, 1999 was $.9 million compared
to $1.6 million in 1998. The decline was the result of increased interest
expense due to short-term borrowings to finance working capital needs in the
third and fourth quarters of fiscal 1999.
Sale of Product Line
In December 1997, the Company sold its scanner product line to Storm
Technology Inc. ("Storm") for $5 million in cash, a $4 million convertible note,
and a 10% common stock ownership in Storm. The Company disposed of its scanner
product line due to fundamental changes in the scanner market.
During the second quarter of 1999, the Company wrote off $5.8 million relating
to the convertible note and common stock investment in Storm. The write-off was
prompted by changes in the personal scanner business, which in management's
opinion called into question the ability of Storm to meet its obligations to the
Company. Storm later filed a voluntary petition for relief under the United
States Bankruptcy Code. The additional $1.5 million primarily relates to costs
to conclude certain obligations exceeding management's estimate made in fiscal
1998.
Other Income (Expense), Net
Other expense for 1999 was $1.4 million, compared to other income of $2.2
million last year. This change was primarily due to net foreign currency
exchange losses in 1999 compared to gains last year. The currency exchange
losses this year were due to the unfavorable exchange rate movements between the
Company's manufacturing sites in Asia and the distribution sites in Europe,
particularly related to the strengthening of the U.S. dollar against the Euro
and other European currencies in the second and fourth fiscal quarters. The
currency exchange gains in 1998 are the result of the U.S. dollar strengthening
against the Taiwan dollar.
Provision for Income Taxes
The provision for income taxes consists of income and withholding taxes and is
based on factors such as management's expectations as to payments of withholding
taxes on amounts repatriated through dividends, the jurisdictions in which
taxable income and losses are generated, changes in local tax laws and changes
in valuation allowances based upon the likelihood of realizing deferred tax
assets. The provision for income taxes for the year ended March 31, 1999
decreased to $1.3 million, representing a 15.0% effective tax rate, from $1.5
million, representing an 8.8% effective tax rate in 1998.
Liquidity and Capital Resources
Cash Balances, Available Borrowings and Capital Resources
At March 31, 2000, cash and cash equivalents totaled $49.4 million. In
addition, the Company had credit lines with several European and Asian banks
totaling $55.4 million. As is common for businesses in European countries,
these credit lines are uncommitted and unsecured. Despite the lack of formal
commitments from its banks, the
26
<PAGE>
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,
2000, $48.8 million was available under these facilities.
Since fiscal 1996, the Company has financed its operations and capital
requirements primarily through cash flow from operations, bank borrowings and
the sale of equity securities. The Company anticipates that its capital
resource requirements will be provided from three sources: ongoing cash flow
from operations, cash and cash equivalents on hand and borrowings, as needed,
under the credit facilities.
Cash Flow from Operating Activities
The Company's operating activities generated cash of $32.9 million for the
year ended March 31, 2000, compared to $16.8 million and $43.5 million in 1999
and 1998. The increase in 2000 was primarily a result of higher earnings from
operating income (excluding the non-recurring non-cash charge of $6.2 million).
The decrease in 1999 compared to 1998 was primarily due to increased working
capital requirements. Accounts receivable increased mainly due to the higher
level of revenues generated in the second half of 1999 compared to 1998.
Inventory levels and product accounts payable increased due to the broader
product offerings that were introduced in the second half of 1999 compared to
the same period in 1998. In addition, as a result of the sale of the scanner
product line in December 1997, scanner product inventories and work-in-process
were sold or liquidated and no additional scanner inventories were added.
Cash Flow from Investing Activities
The Company's investing activities used cash of $19.9 million in the year
ended March 31, 2000, compared to $64.8 million and $7.9 million in 1999 and
1998. Cash used in 2000 included $4.2 million of investments in affiliated
companies, almost half of which was used to form Spotlife Inc., Logitech's spin-
off focused on enhancing video communications using the internet infrastructure.
Cash used in 1999 included $40 million, primarily for three acquisitions--the
internet video camera business of Connectix Corporation, 49% of the outstanding
shares of Space Control GmbH, and 10% of the outstanding shares of Immersion
Corporation. The amounts invested in both years for capital expenditures
related to the Company's computer systems implementation project, as well as
normal expenditures for tooling costs, machinery and equipment, capital
improvements, and other computer equipment. The increase in 1999 capital
expenditures compared to 1998 related primarily to the Company's computer
systems implementation project.
Cash Flow from Financing Activities
Net cash used by financing activities for the year ended March 31, 2000 was
$5.8 million. This represents a $18.4 million paydown of short-term debt net of
$12.9 million of proceeds from treasury shares and registered shares sold to
fulfill employee stock purchase and option plans.
Net cash provided by financing activities for the year ended March 31, 1999
was $19.1 million. This represents principally an increase in short-term debt
for working capital needs and to finance part of the Company's acquisition of
the QuickCam(R) internet video camera business unit of Connectix.
Net cash used in financing activities for the year ended March 31, 1998 was
$.3 million. This amount includes cash proceeds of $4.5 million received in
April 1997 from the sale of the additional registered shares under an option
granted to the underwriters of the initial public offering in the U.S. to cover
over-allotments. These cash proceeds, along with part of the $26.8 million
received in March 1997 from the U.S. initial public offering, were used to pay
down short-term debt by $12.9 million. The Company had additional proceeds of
$7.4 million from the sale of treasury shares upon exercise of stock options and
purchase rights. In addition, the Company had net borrowings of $.9 million
under its credit lines to meet short-term working capital needs.
Capital Commitments
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
generated from operations, and available borrowings under its bank lines of
credit will be sufficient to fund capital expenditures and working capital needs
for the foreseeable future. Fixed commitments for long lead time parts totaled
$25.3 million. Fixed commitment for capital and other expenditures, primarily
for manufacturing equipment, approximated $4.8 million at March 31, 2000. In
addition, the Company has agreed to guarantee up to a
27
<PAGE>
maximum of $5.3 million of Spotlife's capital lease obligation. As of March 31,
2000, the outstanding balance of the lease obligation, and therefore the
Company's guarantee, was $4.4 million.
Other Matters
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 and anticipated experience and
the Company's assessment of inventory in the channels. 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 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 carryforwards,
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 over a two-year period. 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 2001. As a result, the Company's effective income tax
rate may change 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. In January 1999, the Company was advised that the VAT
would not be applied to goods manufactured during calendar 1999 and subsequent
years. With respect to prior years, the Company is in ongoing discussions with
Chinese officials and has been assured that, notwithstanding statements made by
tax authorities, the VAT for these prior periods would not be charged to the
Company. As a result, the Company revised its estimate of VAT liability and
released an accrual of approximately $1.7 million into income in fiscal 2000.
The Company therefore believes the ultimate resolution of this matter will not
have a material adverse effect on the Company's financial position, cash flows
or results of operations.
28
<PAGE>
ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market Risk
As a global concern, the Company faces exposure to adverse movements in
foreign currency exchange rates and interest rates. These exposures may change
over time as business practices evolve and could have a material adverse impact
on the Company's financial results.
Foreign Currency Exchange Rates
Currently, the Company's primary exposures relate to non-dollar denominated
sales in Europe and Asia and non-dollar denominated operating expenses and
inventory costs in Europe and Asia, as well as net assets located in these
geographies. For the year ended March 31, 2000, 45% of the Company's sales and
32% of the Company's net assets were denominated in non-U.S. currencies. For
the year ended March 31, 1999, 42% of the Company's sales and 33% of the
Company's net sales were denominated in non-U.S. currencies.
The Company primarily uses the local currencies of its foreign subsidiaries as
the functional currency. Accordingly, unrealized foreign currency gains or
losses resulting from the translation of net assets denominated in foreign
currencies to the U.S. dollar are accumulated in the cumulative translation
adjustment component of shareholders' equity. At the present time, the Company
does not hedge any currency exposures. The Company estimates that if the U.S.
dollar had appreciated by an additional 10% as compared to the functional
currencies used by foreign subsidiaries, net income for the years ended March
31, 2000 and 1999 would have been adversely impacted by approximately $8.2
million and $4.5 million.
Interest Rates
Changes in interest rates could impact the Company's anticipated interest
income on its cash equivalents and interest expense on debt. The Company
prepared sensitivity analyses of its interest rate exposures to assess the
impact of hypothetical changes in interest rates. Based on the results of these
analyses, a 10% adverse change in interest rates from the fiscal 2000 and 1999
year end rates would not have a material adverse effect on the Company's results
of operations, cash flows or financial condition for the next year.
29
<PAGE>
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT
Directors and Executive Officers
The directors and executive officers of the Company as of June 1, 2000 are as
follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Daniel Borel 50 Chairman of the Board
Guerrino De Luca 47 President and Chief Executive Officer, Director
Gregory Chambers 40 Sr. Vice President, Worldwide Sales and Marketing
Erh-Hsun Chang 51 Sr. Vice President, Operations and General Manager, Far East
Wolfgang Hausen 57 Sr. Vice President and General Manager, Control Devices Division
Kristen Onken 50 Sr. Vice President, Finance, and Chief Financial Officer
Kwong Soon Chay (1) (4) 47 Director
Pier Carlo Falotti (2) 57 Director
Jean-Louis Gassee (1) 56 Director
Frank Gill (2) 56 Director
Kee-Lock Chua (3) 39 Director - elect
</TABLE>
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
(3) Mr. Chua will be presented to the shareholders for election to the Board of
Directors on June 29, 2000.
(4) Mr. Chay will be retiring from the Board of Directors on June 29, 2000
Daniel Borel, a founder of the Company, has been the Chairman of the Board
since July 1992. From July 1992 to February 1998, Mr. Borel also served as
Chief Executive Officer of the Company. He has held various other executive
positions with the Company and its predecessors since their founding. Mr. Borel
holds an MS in Computer Science from Stanford University and a degree in Physics
from the Ecole Polytechnique Federale, Lausanne, Switzerland.
Guerrino De Luca joined the Company as President and Chief Executive Officer
in February 1998, and became a member of the Board of Directors in June 1998.
Prior to that time, Mr. De Luca served as Executive Vice President of Worldwide
Marketing for Apple Computer, Inc., a personal computer company, from February
1997 to September 1997, and as President of Claris Corporation, a personal
computing software vendor, from February 1995 to February 1997. Prior to this,
Mr. De Luca held various positions with Apple in the United States and Europe.
Mr. De Luca holds a BS in Electronic Engineering from the University of Rome,
Italy.
Gregory Chambers joined the Company as Senior Vice President, Worldwide Sales
and Marketing in July 1998. Prior to joining Logitech, Mr. Chambers served from
September 1995 as Vice President of Marketing for Fujitsu PC Corporation, and
from May 1993 as Director, Channel Marketing at Acer America. Mr. Chambers
holds a BS in Industrial Technology from California State Polytechnic University
and an MS in Management from the University of Southern California.
Erh-Hsun Chang joined the Company as Vice President, General Manager, Far
Eastern Area and Worldwide Operations in December 1995. In April 1997, Mr.
Chang was named Senior Vice President, General Manager, Far Eastern Area and
Worldwide Operations. During 1986 and 1987, Mr. Chang held various other
positions with the Company. From January 1994 to December 1995, Mr. Chang was
Vice President, Sales and Marketing, Power Supply Division, of Taiwan Liton
Electronics Ltd., and from December 1991 to January 1994, Mr. Chang was Vice
President, Manufacturing Consulting at KPMG Peat Marwick. Mr. Chang holds a BS
in Civil Engineering from Chung Yuang University, Taiwan, an MBA from the
University of Dallas, and an MS in Industrial Engineering from Texas A&M
University.
Wolfgang Hausen has been Senior Vice President and General Manager, Control
Devices Business Division of the Company since July 1997. Prior to that time,
Mr. Hausen served as President and Chief Executive Officer of Cardinal
Technologies, Inc., a PC multimedia and modem company from May 1994. From March
1989 to December 1993, Mr. Hausen was Vice President and General Manager of
Quantum Corporation, a global supplier of storage products. Mr. Hausen holds an
MSEE from the Technical University of Darmstadt, Germany and an MBA from Santa
Clara University, California.
30
<PAGE>
Kristen Onken joined the Company as Senior Vice President, Finance, and Chief
Financial Officer in February 1999. From February 1996 to February 1999, Ms.
Onken served as Vice President of Finance at Fujitsu PC Corporation. From 1991
to February 1996, Ms. Onken was employed by Sun Microsystems, Inc. first as
Controller of the Southwest Area; then from 1992 to 1996 she served as Director
of Finance, Sun Professional Services. Ms. Onken holds a BS degree from
Southern Illinois University and an MBA in Finance from the University of
Chicago, Illinois.
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. Prior to that time, Mr. Chay held various executive positions
with Creative Technology Ltd. from 1986 to June 1996, including President/COO
from 1992. Mr. Chay holds a degree in Physics from University of Singapore.
Mr. Chay will be retiring from the Board on June 29, 2000.
Pier Carlo Falotti has been a director of Logitech International S.A. since
June 1996. Since September 1996, Mr. Falotti serves as Executive 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, 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 Digital Europe, Middle East and Africa from 1983.
Mr. Falotti holds a degree in Electrical Engineering from the Institute
Avogadro, Torino, Italy.
Jean-Louis Gassee has been a director of Logitech International S.A. since
June 1993. Since October 1990, Mr. Gassee has been Chief Executive Officer of
Be Inc. Before founding Be, Mr. Gassee held various executive positions with
Apple Computer, Inc. during the period December 1980 to September 1990,
including President of the Apple Products Division. He currently serves on the
boards of Be Inc., Electronics For Imaging Inc. and 3Com Corporation. Mr.
Gassee holds a science degree from the Universite de Paris.
Frank Gill has been a director since June 1999. Mr. Gill served in a variety
of positions in sales and marketing, product development and manufacturing
operations at Intel Corporation from 1975 until his retirement in June 1998,
including Executive Vice President in 1996, General Manager of the Internet and
Communications Group from 1995 and from 1990 through 1994, General Manager of
Intel's Systems Group. He currently serves on the Boards of Tektronix Inc.,
Inktomi Corporation, Niku Corporation, Telcom Semiconductor Inc., McAfee.com
Inc. and Pixelworks Inc. Mr. Gill holds a BS in Electrical Engineering from the
University of California, Davis.
Kee-Lock Chua is being presented to the shareholders for election to the Board
on June 29, 2000. Mr. Chua is the president of MediaRing.com, a global internet
company listed on the Stock Exchange of Singapore. Mr. Chua was appointed as a
Director of MediaRing.com in October 1997. Prior to joining MediaRing.com, Mr.
Chua was employeed by NatSteel Ltd., most recently as Executive Vice President,
responsible for the commercial group, production planning, strategic planning
and several overseas operations. Mr. Chua was also a director of NatSteel
Electronics Ltd. and NatSteel Broadway Ltd.; both of which companies are
involved in contract manufacturing and are listed in the Singapore Stock
Exchange. Prior to joining NatSteel Ltd., Mr. Chua worked for Transpac Capital,
where he served as Vice President, in charge of direct investments into
companies in the United States. Mr. Chua holds a BS degree in Mechanical
Engineering from the University of Wisconsin, and a MS degree from Stanford
University.
Indemnification of Officers and Directors
The Company has entered into agreements to indemnify its directors and
officers. Certain of these agreements are between the respective officer or
director and Logitech International S.A., and cover claims brought under U.S.
laws to the fullest extent permitted by Swiss law. In addition, the Company's
U.S. subsidiary, Logitech Inc., has entered into separate indemnification
agreements with the Company's executive officers and directors. The agreements
with Logitech Inc. are broader in certain respects than those entered into with
Logitech International S.A. These agreements, among other things, indemnify
directors and officers for certain expenses (including attorneys fees),
judgments, fines and settlement amounts incurred by any such person in any
action or proceeding, including any action by or in the right of the Company,
arising out of such person's services as a director or officer of the Company.
The Company believes that these provisions and agreements are necessary to
attract and retain qualified directors and officers.
31
<PAGE>
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 has six directors as of June 1, 2000. 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
Company executives 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, 2000, the Company's four non-employee
directors during that year were paid an aggregate of $74,000. 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 $2.2 million to six executive officers for
services rendered in all capacities to the Company in the fiscal year ended
March 31, 2000. A portion of the compensation paid to the executive officers in
fiscal 2000 was pursuant to the Company's annual performance-based bonus plan
that covers all officers and senior managers. In addition, the Company
contributed an aggregate of $15,100 for six executive officers under the
Company's defined contribution plan.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
As of June 1, 2000, there were outstanding options to purchase an aggregate of
813,774 registered shares at exercise prices ranging from CHF 40 to CHF 570 and
expiration dates ranging from March 2002 to May 2010. As of June 1, 2000, the
Company's directors and executive officers held options to purchase an aggregate
of 249,382 registered shares at exercise prices ranging from CHF 40 to CHF 458
with expiration dates ranging from December 2005 to April 2010.
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
Not applicable
Part II
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED
Not applicable
Part III
ITEM 15. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
SECURITIES
Not applicable
Part IV
32
<PAGE>
ITEM 17. FINANCIAL STATEMENTS
The Company has responded to Item 18.
ITEM 18. FINANCIAL STATEMENTS
See pages F-1 through F-20.
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
a. Financial Statements
Report of Independent Accountants
Consolidated balance sheets at March 31, 2000 and 1999
Consolidated statements of income for the years ended March 31, 2000,
1999 and 1998
Consolidated statements of cash flows for the years ended March 31, 2000,
1999 and 1998
Consolidated statements of changes in shareholders' equity for the years
ended March 31, 2000, 1999 and 1998
Notes to consolidated financial statements
b. Exhibits
Exhibit Number Description of Document
-------------- -----------------------
23.1 Consent of PricewaterhouseCoopers SA, Independent Accountants
33
<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/ Guerrino De Luca
--------------------------------------
Guerrino De Luca
President and Chief Executive Officer
By: /s/ Kristen M. Onken
--------------------------------------
Kristen M. Onken
Chief Finance Officer,
Chief Accounting Officer,
and U.S. Representative
34
<PAGE>
Page
----
Report of Independent Accountants F-2
Consolidated balance sheets at March 31, 2000 and 1999 F-3
Consolidated statements of income for the years
ended March 31, 2000, 1999 and 1998 F-4
Consolidated statements of cash flows for the years
ended March 31, 2000, 1999 and 1998 F-5
Consolidated statements of changes in shareholders' equity
for the years ended March 31, 2000, 1999 and 1998 F-6
Notes to consolidated financial statements F-7
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Logitech International S.A.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of cash flows and of changes in shareholders'
equity present fairly, in all material respects, the financial position of
Logitech International S.A. and its subsidiaries at March 31, 2000 and 1999, and
the results of their operations and their cash flows for each of the three years
in the period ended March 31, 2000, 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.
/s/ PricewaterhouseCoopers SA
Lausanne, Switzerland
April 24, 2000, except as to Note 3
which is as of July 5, 2000
F-2
<PAGE>
LOGITECH INTERNATIONAL S.A.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
March 31,
-------------------------
2000 1999
---------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 49,426 $ 43,251
Accounts receivable.............................................................. 123,172 93,501
Inventories...................................................................... 68,255 70,100
Other current assets............................................................. 25,354 13,907
---------- ----------
Total current assets......................................................... 266,207 220,759
Investments....................................................................... 10,807 13,856
Property, plant and equipment..................................................... 42,117 40,203
Intangible assets................................................................. 14,007 18,247
Other assets...................................................................... 939 1,424
---------- ----------
Total assets................................................................. $334,077 $294,489
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt.................................................................. $ 6,990 $ 25,385
Accounts payable................................................................. 92,430 83,640
---------- ----------
Accrued liabilities.............................................................. 51,049 41,377
Total current liabilities.................................................... 150,469 150,402
Long-term debt.................................................................... 2,934 3,624
Other liabilities................................................................. 705 709
---------- ----------
Total liabilities............................................................ 154,108 154,735
---------- ----------
Commitments and contingencies (Note 13)
Shareholders' equity:
Registered shares, par value CHF 10 - 4,362,920 authorized, 1,147,080
conditionally authorized, 4,162,920 issued and outstanding at March 31, 2000;
4,203,376 authorized, 1,306,624 conditionally authorized, 4,003,376 issued and
outstanding at March 31, 1999.................................................. 29,752 28,738
Additional paid-in capital...................................................... 83,686 75,717
Less registered shares in treasury, at cost, 20,640 at March 31, 2000 and
129,846 at March 31, 1999...................................................... (1,056) (6,643)
Retained earnings............................................................... 84,367 54,323
Cumulative translation adjustment............................................... (16,780) (12,381)
---------- ----------
Total shareholders' equity................................................... 179,969 139,754
---------- ----------
Total liabilities and shareholders' equity................................... $334,077 $294,489
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
LOGITECH INTERNATIONAL S.A.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Year ended March 31,
--------------------------------------------
2000 1999 1998
------------ ----------- ------------
<S> <C> <C> <C>
Net sales................................................................ $ 615,664 $ 470,741 $ 406,109
Cost of goods sold....................................................... 408,969 308,018 273,266
---------- ---------- -----------
Gross profit............................................................. 206,695 162,723 132,843
Operating expenses:
Marketing and selling................................................... 102,957 85,350 68,813
Research and development................................................ 31,666 31,378 27,774
General and administrative.............................................. 31,102 23,625 19,944
Acquired in-process research and development............................ -- 6,200 --
---------- ---------- -----------
Operating income......................................................... 40,970 16,170 16,312
Interest income (expense), net........................................... (163) 906 1,592
Loss on sale of product line............................................. -- (7,272) (3,174)
Other income (expense), net.............................................. (3,252) (1,407) 2,222
---------- ---------- -----------
Income before income taxes............................................... 37,555 8,397 16,952
Provision for income taxes............................................... 7,511 1,260 1,496
---------- ---------- -----------
Net income............................................................... $ 30,044 $ 7,137 $ 15,456
========== ========== ===========
Net income per share:
Basic................................................................... $ 7.55 $ 1.85 $ 4.09
Diluted................................................................. $ 6.87 $ 1.79 $ 3.91
Net income per ADS:
Basic................................................................... $ .76 $ .19 $ .41
Diluted................................................................. $ .69 $ .18 $ .39
Shares used to compute net income per share:
Basic................................................................... 3,976,990 3,867,220 3,776,464
Diluted................................................................. 4,375,994 3,982,674 3,954,114
</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,
----------------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................................... $ 30,044 $ 7,137 $ 15,456
Non-cash items included in net income:
Depreciation and amortization........................................... 20,015 15,778 13,379
Acquired in-process research and development............................ -- 6,200 --
Write-off of investments and note receivable............................ 2,000 5,800 --
Loss on disposal of property, plant and equipment....................... 117 1,081 792
Loss on sale of product line............................................ -- -- 3,174
Gain on sale of touchpad technology..................................... (1,525) -- --
Equity in net losses of affiliated companies............................ 4,627 254 --
Stock compensation expense.............................................. 422 283 419
Deferred income taxes................................................... (24) (1,844) (1,238)
Changes in assets and liabilities:
Accounts receivable..................................................... (31,823) (31,886) 7,368
Inventories............................................................. (345) (32,301) 19,923
Other current assets.................................................... (9,816) (1,916) 2,294
Accounts payable........................................................ 7,232 40,672 (12,355)
Accrued liabilities..................................................... 11,942 7,541 (5,739)
-------- -------- --------
Net cash provided by operating activities............................. 32,866 16,799 43,473
-------- -------- --------
Cash flows from investing activities:
Additions to property, plant and equipment............................... (17,872) (24,756) (12,888)
Cash proceeds from sale of touchpad technology........................... 2,150 -- --
Cash proceeds from sale of product line.................................. -- -- 5,000
Acquisitions and investments in affiliated companies..................... (4,219) (40,048) --
-------- -------- --------
Net cash used in investing activities................................. (19,941) (64,804) (7,888)
-------- -------- --------
Cash flows from financing activities:
Net borrowings (repayment) of short-term debt............................ (18,416) 19,063 (12,012)
Repayment of long-term debt.............................................. (330) (172) (107)
Purchase of treasury shares.............................................. -- (4,018) (29)
Proceeds from sale of treasury shares.................................... 5,413 4,192 11,896
Proceeds from issuance of registered shares.............................. 7,512 -- --
-------- -------- --------
Net cash provided by (used in) financing activities................... (5,821) 19,065 (252)
-------- -------- --------
Effect of exchange rate changes on cash and cash equivalents.............. (929) (185) (1,461)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents.................. 6,175 (29,125) 33,872
-------- -------- --------
Cash and cash equivalents at beginning of period.......................... 43,251 72,376 38,504
-------- -------- --------
Cash and cash equivalents at end of period................................ $ 49,426 $ 43,251 $ 72,376
======== ======== ========
Supplemental cash flow information:
Interest paid............................................................ $ 616 $ 1,230 $ 530
Income taxes paid........................................................ $ 1,808 $ 1,423 $ 1,494
Non-cash investing and financing activities: property acquired through
capital lease financing.................................................. -- $ 1,007 --
</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>
Additional Cumulative
Registered shares paid-in Treasury shares Retained translation
----------------- ---------------
Shares Amount capital Shares Amount earnings adjustment Total
------ ------ ------- ------ ------ -------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
April 1, 1997......................... 4,003,376 $28,738 $73,430 365,678 $(16,813) $31,730 $ (5,394) $111,691
Net income............................ -- -- -- -- -- 15,456 -- 15,456
Cumulative translation adjustment..... -- -- -- -- -- -- (6,696) (6,696)
--------
Total comprehensive income........... -- -- -- -- -- -- -- 8,760
--------
Purchase of treasury shares........... -- -- -- 400 (29) -- -- (29)
Sale of treasury shares upon exercise
of options and purchase rights....... -- -- 348 (160,100) 7,424 -- -- 7,772
Sale of treasury shares in public
offering, net of expenses............ -- -- 1,799 (60,000) 2,741 -- -- 4,540
--------- ------- ------- ------- -------- ------- -------- --------
March 31, 1998........................ 4,003,376 $28,738 $75,577 145,978 $ (6,677) $47,186 $(12,090) $132,734
--------- ------- ------- ------- -------- ------- -------- --------
Net income............................ -- -- -- -- -- 7,137 -- 7,137
Cumulative translation adjustment..... -- -- -- -- -- -- (291) (291)
--------
Total comprehensive income........... -- -- -- -- -- -- -- 6,846
--------
Purchase of treasury shares........... -- -- -- 67,812 (4,018) -- -- (4,018)
Sale of treasury shares upon exercise
of options and purchase rights....... -- -- 140 (83,944) 4,052 -- -- 4,192
--------- ------- ------- ------- -------- ------- -------- --------
March 31, 1999........................ 4,003,376 $28,738 $75,717 129,846 $ (6,643) $54,323 $(12,381) $139,754
--------- ------- ------- ------- -------- ------- -------- --------
Net income............................ -- -- -- -- -- 30,044 -- 30,044
Cumulative translation adjustment..... -- -- -- -- -- -- (4,399) (4,399)
--------
Total comprehensive income........... -- -- -- -- -- -- -- 25,645
--------
Issuance of registered shares upon
exercise of options.................. 159,544 1,014 6,498 -- -- -- -- 7,512
Tax benefit from stock plan........... -- -- 1,645 -- -- -- -- 1,645
Sale of treasury shares upon exercise
of options and purchase rights....... -- -- (174) (109,206) 5,587 -- -- 5,413
--------- ------- ------- ------- -------- ------- -------- --------
March 31, 2000........................ 4,162,920 $29,752 $83,686 20,640 $ (1,056) $84,367 $(16,780) $179,969
========= ======= ======= ======= ======== ======= ======== ========
</TABLE>
F-6
<PAGE>
LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 -- The Company:
Logitech International S.A. designs, manufactures and markets human interface
devices and supporting software which often serve as the primary physical
interface between users and their personal computers and the internet. The
Company's products include corded and cordless mice, optical trackballs,
keyboards, joysticks, gamepads, racing systems, internet video cameras, and
multimedia speakers. The Company sells its products to both original equipment
manufacturers ("OEMs") and to a network of retail distributors and resellers.
Note 2 -- Summary of Significant Accounting Policies:
Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All material intercompany balances and
transactions have been eliminated. The consolidated financial statements are
presented in accordance with accounting principles generally accepted in the
United States of America ("U.S. GAAP") and comply with relevant Swiss law.
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, allowances for estimated
future returns and price protection are provided for upon revenue recognition.
Such amounts are estimated based on historical and anticipated rates of returns,
distributor inventory levels and other factors.
Advertising
Advertising costs are expensed as incurred and amounted to $33.5 million in
2000, $27.9 million in 1999 and $17.7 million in 1998.
Foreign Currency
The functional currencies of the Company's operations are primarily the U.S.
dollar, and to a lesser extent, the Euro, Swiss franc, Taiwanese dollar and
Japanese yen. The financial statements of the Company's subsidiaries whose
functional currency is other than the U.S. dollar are translated to U.S. dollars
using period-end rates of exchange for assets and liabilities and using 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 income.
Cash Equivalents
The Company considers all highly liquid instruments purchased with an original
maturity of three months or less to be cash equivalents.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash and cash equivalents and accounts
receivable. The Company maintains cash and cash equivalents with various
financial institutions to limit exposure with any one financial institution.
F-7
<PAGE>
LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company sells its products to large OEMs and to high volume resellers and,
as a result, maintains individually significant receivable balances with large
customers. At March 31, 2000, three customers represented 23.6% of total
accounts receivable and at March 31, 1999, one customer represented 5.3% 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 collateral from its
customers.
Inventories
Inventories are stated at the lower of cost or market. Cost is computed on a
first-in, first-out basis. Provisions are made for potentially excess or slow
moving inventories.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Additions and improvements
are capitalized, whereas maintenance and repairs are expensed as incurred.
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.
Intangible Assets
Intangible assets principally include goodwill, acquired technology and trade
names. Intangible assets are recorded at cost and amortized on the straight-
line method over periods not exceeding ten years. Accumulated amortization of
intangible assets was $6.8 million and $5.5 million at March 31, 2000 and 1999.
The Company periodically evaluates the recoverability of intangible assets based
on such factors as the occurrence of a significant adverse event or if expected
future net undiscounted cash flows would become less than the carrying amount of
the asset.
Income Taxes
The Company provides for income taxes using the liability method, which
requires that deferred tax assets and liabilities be recognized for the expected
future tax consequences of temporary differences arising between the bases of
assets and liabilities for financial reporting and income tax purposes. In
estimating future tax consequences, expected future events are taken into
consideration, with the exception of potential tax law or tax rate changes.
Fair Value of Financial Instruments
For certain of the Company's financial instruments, including cash and cash
equivalents and accounts receivable, accounts payable and accrued liabilities,
short-term debt and current maturities of long-term debt, carrying value
approximates fair value due to their short maturities. The carrying values of
long-term debt do not materially differ from their estimated fair values based
upon quoted market prices for the same or similar instruments.
Net Income Per Share
Basic earnings per share is computed by dividing net income by the weighted
average number of outstanding registered shares. Diluted earnings per share is
computed using weighted average registered shares and, if dilutive, weighted
average registered share equivalents. The registered share equivalents included
in the Company's diluted earnings per share computations are registered shares
issuable upon the exercise of stock option or stock purchase plan agreements
(using the treasury stock method).
F-8
<PAGE>
LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Compensation Plans
The Company has adopted the pro forma disclosure-only requirements of SFAS
123, "Accounting for Stock-Based Compensation," which requires companies to
measure employee stock compensation based on the fair value method of
accounting. As permitted by SFAS 123, the Company will continue to follow the
accounting provisions of Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees." Accordingly, compensation expense is not
recognized unless the exercise price of an option is less than the market value
of the underlying stock on the grant date.
Reclassifications
Certain amounts reported in prior years' financial statements have been
reclassified to conform with the current year presentation.
Note 3 - Stock Split:
The Company completed a two-for-one stock split which was effected in the form
of a stock dividend and distributed on July 5, 2000 payable to stockholders of
record as of July 4, 2000. All references to share and per-share data for all
periods presented have been adjusted to give effect to this two-for-one stock
split.
Note 4 -- Equity Investments:
In November 1999, Logitech announced the formation of a new company, Spotlife
Inc., that will enhance video communications using the internet infrastructure.
At the same time, Logitech announced the investment of $10.8 million in Spotlife
by other investors, including two venture capital firms. Spotlife is
independently managed and launched its internet service in May 2000. Logitech
has invested $2 million in Spotlife, and has agreed to guarantee up to a maximum
of $5.3 million of the new company's capital lease obligation. As of March 31,
2000, the outstanding balance of the lease obligation, and therefore the
Company's guarantee, was $4.4 million. As of March 31, 2000, Logitech owns
approximately 45.1% of Spotlife's outstanding shares on a fully diluted basis,
with outside investors having the ability to exercise significant influence over
the management of the new company. Logitech accounts for its investment in this
company using the equity method.
In June 1998, the Company acquired 49% of the outstanding shares of Space
Control, GmbH., the German-based provider of Logitech's Magellan 3D Controller.
The agreement includes an obligation for the Company to acquire the remaining
outstanding shares of Space Control, if certain conditions are met. The Company
is using the equity method of accounting for this investment.
In April 1998, the Company acquired 10% of the then outstanding stock of
Immersion Corporation, a developer of force feedback technology for PC
peripherals and software applications. In November 1999, Immersion registered
shares on the U.S. NASDAQ Stock Market in an initial public offering. As part
of this offering, Logitech signed a lock-up agreement that prevents it from
selling its stock in Immersion for six months. As of March 31, 2000, Logitech
owns 7.5% of Immersion. The cost of these securities was $5 million and the
gross unrealized gain was $67 million. As of April 30, 2000, the gross
unrealized gain was $38 million. The Company uses the cost method of accounting
for this investment.
Note 5 -- Business Acquisition:
In September 1998, the Company completed the acquisition of Connectix
Corporation's QuickCam(R) PC video camera business for $26.2 million (including
closing and other costs). The Connectix business has been combined with the
Company's video division to offer a complete line of PC internet video cameras.
The transaction was recorded using the purchase method of accounting.
Accordingly, the results of operations of the acquired business from the date of
acquisition have been included in the consolidated statement of income.
In connection with the acquisition, the Company recorded $19.4 million in
goodwill and other intangible assets. In addition, the Company recorded a one-
time charge of $6.2 million for acquired in-process research and development in
the quarter ended September 30, 1998.
F-9
<PAGE>
Note 6 -- Sale of Product Line:
In December 1997, the Company sold its scanner product line to Storm
Technology Inc. for $5 million in cash, a $4 million convertible note, and a 10%
common stock ownership in Storm. The Company recognized a loss on this sale in
fiscal 1998 of $3.2 million.
F-10
<PAGE>
LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the second quarter of fiscal 1999, the Company wrote off $5.8 million
related to the convertible note and common stock investment in Storm. The
write-off was prompted by changes in the personal scanner business, which in
management's opinion called into question the ability of Storm to meet its
obligations to the Company. Storm later filed for protection under the United
States Bankruptcy Code. The additional expenses in fiscal 1999 primarily relate
to costs to conclude certain obligations exceeding management's estimate made in
1998.
Note 7 -- Comprehensive Income:
As of April 1, 1998, the Company adopted SFAS 130, "Reporting Comprehensive
Income." Comprehensive income, which is reported in the Statements of Changes
in Shareholders' Equity, is defined as the total change in shareholders' equity
during the period other than from transactions with shareholders. For the
Company, comprehensive income consists of net income and the net change in the
accumulated foreign currency translation adjustment account. The adoption of
SFAS 130 had no impact on net income or shareholders' equity.
Note 8 -- Balance Sheet Components:
<TABLE>
<CAPTION>
March 31,
-------------------------------
2000 1999
---------------- ------------
(In thousands)
<S> <C> <C>
Accounts receivable:
Accounts receivable.......................................................... $130,944 $ 99,669
Allowance for doubtful accounts.............................................. (3,190) (2,067)
Allowance for returns and other.............................................. (4,582) (4,101)
----------- ----------
$123,172 $ 93,501
=========== ==========
Inventories:
Raw materials................................................................ $ 16,762 $ 13,077
Work-in-process.............................................................. 517 1,566
Finished goods............................................................... 50,976 55,457
----------- ----------
$ 68,255 $ 70,100
=========== ==========
Property, plant and equipment:
Land......................................................................... $ 1,980 $ 1,875
Plant and buildings.......................................................... 25,297 26,028
Equipment.................................................................... 91,217 78,849
----------- ----------
118,494 106,752
Less accumulated depreciation................................................ (76,377) (66,549)
----------- ----------
$ 42,117 $ 40,203
=========== ==========
</TABLE>
F-11
<PAGE>
LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 -- Financing Arrangements:
Short-term Credit Facilities
To support short-term working capital requirements, the Company had several
uncommitted, unsecured bank lines of credit aggregating $55.4 million at March
31, 2000. Borrowings outstanding were $6.6 million and $25.1 million at March
31, 2000 and March 31, 1999. At March 31, 2000, the borrowings under these
agreements were denominated in Japanese yen at a weighted average annual
interest rate of 1.63% and were due on demand.
Long-term Debt
<TABLE>
<CAPTION>
March 31,
------------------------
2000 1999
---------- -----------
(In thousands)
<S> <C> <C>
Renewable Swiss mortgage loan due April 2004, bearing interest at 4.0%,
collateralized by properties with net book values aggregating $1,809,000 at March
31, 2000.......................................................................... $2,774 $3,113
Capital lease obligation, with repayments of $344,000 and $160,000 in fiscal 2001
and 2002.......................................................................... 504 834
------- --------
Total long-term debt............................................................... 3,278 3,947
Less current maturities............................................................ 344 323
------- --------
Long-term portion.................................................................. $2,934 $3,624
======= ========
</TABLE>
Note 10 -- Shareholders' Equity:
In June 1998, the shareholders approved an increase of 600,000 conditional
registered shares, par value CHF 10, the issuance of which is conditional upon
the exercise of stock options granted under the Company's stock option plans and
the issuance of shares under the Company's employee share purchase plans.
Pursuant to Swiss corporate law, Logitech International S.A. may only pay
dividends in Swiss francs. The payment of dividends is limited to certain
amounts of unappropriated retained earnings (approximately $37 million at March
31, 2000) and is subject to shareholder approval.
Under Swiss corporate law, a minimum of 5% of the Company's annual net income
must be retained in a legal reserve until this reserve equals 20% of the
Company's issued and outstanding aggregate par value share capital. Certain
other countries in which the Company operates apply similar laws. These legal
reserves represent an appropriation of retained earnings that are not available
for distribution and approximated $5 million at March 31, 2000.
Note 11 -- Employee Benefit Plans:
Stock Compensation Plans
Employee Share Purchase Plans
Under the 1989 and 1996 Employee Share Purchase Plans (the "Purchase Plans"),
eligible employees may purchase registered shares at the lower of 85% of the
fair market value at the beginning or the end of each six-month offering period.
Subject to continued participation in the Purchase Plans, purchase agreements
are automatically exercised at the end of each offering period.
F-12
<PAGE>
LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Option Plans
Under the 1988 Stock Option Plan (the "1988 Option Plan"), options to purchase
registered shares were granted to employees and consultants at exercise prices
ranging from zero to amounts in excess of the fair market value of the
registered shares on the date of grant. The terms and conditions with respect
to options granted were determined by the Board of Directors who administered
the 1988 Option Plan. Options generally vest over four years and remain
outstanding for periods not exceeding ten years. Further grants may not be made
under this plan.
In June 1996, the shareholders approved the 1996 Stock Option Plan (the "1996
Option Plan"), which became effective upon closing the U.S. public offering in
March 1997. Under the 1996 Option Plan, options for registered shares may be
granted to employees at exercise prices of not less than 100% of the fair market
value of the registered shares on the date of grant. A total of 1,200,000
registered shares may be issued under the 1996 Option Plan. Options generally
vest over four years and remain outstanding for periods not exceeding ten years.
The Company also maintains a limited number of other small option agreements,
principally for directors and certain foreign executives, under which options
may be granted at exercise prices discounted from fair market value of the
registered shares on the date of grant.
Compensation expense is 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 $422,000, $283,000 and $419,000 was recorded for the
years ended March 31, 2000, 1999 and 1998. Such amounts are accrued as a
liability when the expense is recognized and subsequently credited to additional
paid-in capital upon exercise of the related stock option. Compensation expense
arising from stock options outstanding at March 31, 2000 to be recognized in
future periods approximates $466,000.
In recognition of the decline in the fair market value of the Company's
registered shares, the Company repriced options to purchase 573,734 registered
shares in October 1998 to the then current fair market value. In return for the
lower exercise price, the vesting period of the repriced options started over as
of the reissue date. The weighted average per share exercise price of the
outstanding shares subject to option prior to conversion was $66.10, and the
repriced exercise price was $48.45.
A summary of activity under the stock option plans is as follows:
<TABLE>
<CAPTION>
Year ended March 31,
-----------------------------------------------------------------------------------
2000 1999 1998
--------------------------- -------------------------- -------------------------
Exercise Exercise Exercise
Number Price Number Price Number Price
--------- --------- --------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year......... 856,002 $47 623,910 $61 444,140 $43
Granted................................ 234,060 $85 963,304 $52 364,088 $84
Exercised.............................. (229,550) $44 (49,348) $42 (113,792) $60
Cancelled or expired................... (89,958) $58 (681,864) $70 (70,526) $72
--------- --------- ---------
Outstanding, end of year............... 770,554 $58 856,002 $47 623,910 $61
========= ========= =========
Exercisable, end of year............... 186,984 $48 153,498 $44 136,682 $41
</TABLE>
F-13
<PAGE>
LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information regarding stock options outstanding
at March 31, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Contractual Exercise
Range of Exercise Number Price Life (years) Number Price
Prices -------- ----- ------------ ------ -----
-----------------
<S> <C> <C> <C> <C> <C>
$ 0 - $ 45 196,928 $ 40 7.75 78,014 $39
$ 46 - $ 69 362,162 $ 51 8.55 103,282 $52
$ 70 - $ 84 145,540 $ 72 9.19 580 $77
$ 85 - $ 187 55,174 $ 87 9.13 5,108 $86
$ 188 - $ 338 10,750 $273 9.84 0 $ 0
-------- -------
770,554 $ 58 8.52 186,984 $48
======== =======
</TABLE>
Pro Forma Stock Compensation Disclosure
The Company applies the provisions of APB 25 and related interpretations in
accounting for compensation expense under the purchase plans and the stock
option plans. If compensation expense under these plans had been determined
pursuant to SFAS 123, the Company's net income and net income per share would
have been as follows:
<TABLE>
<CAPTION>
Year ended March 31,
-----------------------------------------
2000 1999 1998
----------- --------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Pro forma net income........................................... $23,584 $ 911 $11,888
Pro forma basic net income per share........................... $ 5.93 $ .24 $ 3.15
Pro forma diluted net income per share......................... $ 5.39 $ .23 $ 3.00
</TABLE>
F-14
<PAGE>
LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of the grants under the purchase plans and stock option plans
was estimated using the Black-Scholes valuation model with the following
assumptions and values:
<TABLE>
<CAPTION>
Year ended March 31,
--------------------------------------------------------------------------------------
Purchase Plans Stock Option Plans
---------------------------------------- ---------------------------------------
2000 1999 1998 2000 1999 1998
--------- --------- -------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Dividend yield........................ 0 0 0 0 0 0
Expected life......................... 6 months 6 months 6 months 2.5 years 3.0 years 3.2 years
Expected volatility................... 50% 48% 37% 55% 47% 41%
Risk-free interest rate............... 6.5% 4.875% 5.6% 6.5% 4.875% 5.5%
Weighted average fair value of grant.. $19.00 $21.00 $19.50 $31.50 $20.00 $28.13
</TABLE>
The above pro forma amounts include compensation expense based on the fair
value of options vesting during the years ended March 31, 2000, 1999 and 1998.
As provided by SFAS 123, these calculations exclude the effects of options
granted prior to April 1, 1996. Accordingly, these amounts are not
representative of the effects of computing stock option compensation expense
using the fair value method for future periods.
In 1999, the Company granted 86,220 options with exercise prices less than
the fair market value of the underlying stock at the date of grant. The weighted
average exercise price of such options was $44.50, and the weighted average fair
value was $63.
Pension Plans
Defined Contribution Plans
Certain of the Company's subsidiaries have defined contribution employee
benefit plans covering all or a portion of their employees. Contributions to
these plans are discretionary for certain plans and are based on specified or
statutory requirements for others. The charges to expense for these plans for
the years ended March 31, 2000, 1999 and 1998, were $1,214,000, $1,170,000 and
$957,000.
Defined Benefit Plan
One of the Company's subsidiaries sponsors a noncontributory defined
benefit pension plan covering substantially all of its employees. Retirement
benefits are provided based on employees' years of service and earnings. The
Company's practice is to fund amounts sufficient to meet the requirements set
forth in the applicable employee benefit and tax regulations.
Net pension cost in the statement of income for the years ended March 31,
2000, 1999 and 1998 were $340,000, $339,000 and $376,000. The plan's net
pension liability at March 31, 2000 and 1999 was $625,000 and $511,000.
Note 12 -- Income Taxes:
The Company is incorporated in Switzerland but operates in various
countries with differing tax laws and rates. Further, the Company's income
before taxes and the provision for income taxes are generated primarily outside
of Switzerland. Consequently, the weighted average expected tax rate may vary
from period to period to reflect the generation of taxable income in different
tax jurisdictions.
F-15
<PAGE>
LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year ended March 31,
-------------------------------------
2000 1999 1998
------ ------ -------
(In thousands)
<S> <C> <C> <C>
Current:
Swiss................................ $ 986 $ 268 $ 1,192
Foreign.............................. 6,549 2,836 1,542
Deferred:
Swiss................................ -- 59 --
Foreign.............................. (24) (1,903) (1,238)
------- ------- -------
Total............................... $7,511 $ 1,260 $ 1,496
======= ======= =======
</TABLE>
Deferred income tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
March 31,
-------------------------
2000 1999
--------- -------
(In thousands)
<S> <C> <C>
Net operating loss carryforwards............................................ $ 2,485 $ 5,902
Depreciation and amortization............................................... (831) 1,405
Research and development and other tax credit carryforwards................. 5,794 6,190
Accruals.................................................................... 13,606 9,343
Other....................................................................... 1,073 1,297
-------- --------
Gross deferred tax assets................................................... 22,127 24,137
Valuation allowance......................................................... (15,190) (17,176)
-------- --------
Net deferred tax assets..................................................... $ 6,937 $ 6,961
======== ========
</TABLE>
Management regularly assesses the realizability of deferred tax assets
recorded in the Company's subsidiaries based upon the weight of available
evidence, including such factors as the recent earnings history and expected
future taxable income. The methodology used by management to determine the
amount of deferred tax assets that are more likely than not to be realized is
based upon the Company's recent earnings and estimated future taxable income in
applicable tax jurisdictions for approximately the next two years. Management
believes that it is more likely than not that the Company will not realize a
portion of its deferred tax assets and, accordingly, a valuation allowance of
$15.2 million has been established for such amounts at March 31, 2000. In the
event future taxable income is below management's estimates or is generated in
tax jurisdictions different than projected, the Company could be required to
increase the valuation allowance for deferred tax assets. This would result in
an increase in the Company's effective tax rate.
At March 31, 2000, the Company had tax credit carryforwards for foreign,
U.S. federal and state purposes of approximately $5.8 million. At March 31,
2000, the Company had net operating loss carryforwards for foreign purposes of
approximately $2.5 million.
The difference between the provision for income taxes and the expected tax
provision at the weighted average tax rate is reconciled below. The expected tax
provision at the weighted average rate is generally calculated using pre-tax
accounting income or loss in each country multiplied by that country's
applicable statutory tax rates.
F-16
<PAGE>
LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Year ended March 31,
----------------------------------------
2000 1999 1998
--------- -------- ---------
(In thousands)
<S> <C> <C> <C>
Expected tax provision (benefit) at weighted average rate............... $ 8,638 $(1,082) $2,725
Foreign tax withholdings................................................ 340 107 321
Permanent differences................................................... 96 (627) 377
Net operating losses utilized........................................... -- (512) --
Tax credits utilized.................................................... -- -- (467)
Net operating losses and tax credits not benefited...................... -- (3,951) --
Increase (decrease) in valuation allowance.............................. (1,986) 7,358 (993)
Other................................................................... 423 (33) (467)
-------- ------- ------
Total provision for income taxes........................................ $ 7,511 $ 1,260 $1,496
======== ======= ======
</TABLE>
Note 13 -- Commitments and Contingencies:
The Company leases facilities under operating leases, certain of which require
it to pay property taxes, insurance and maintenance costs. Operating leases for
facilities are generally renewable at the Company's option and usually include
escalation clauses linked to inflation.
Future minimum annual rentals at March 31, 2000 are as follows (in thousands):
<TABLE>
<CAPTION>
Year ending March 31,
<S> <C> <C>
2001................................. $ 1,512
2002................................. 1,238
2003................................. 3,928
2004................................. 4,789
2005 and thereafter.................. 4,338
--------
$15,805
========
</TABLE>
Rent expense was $1.9 million, $2.6 million and $2.0 million during the
years ended March 31, 2000, 1999 and 1998.
Fixed commitments for long lead time parts totalled $25.3 million at March
31, 2000. Fixed commitments for capital and other expenditures, primarily for
manufacturing equipment, approximated $4.8 million.
In December 1996, the Company was advised of the intention to begin
implementing a value added tax ("VAT") on goods manufactured in certain parts of
China since July 1995, including where the Company's operations are located, and
intended for export. In January 1999, the Company was advised that the VAT would
not be applied to goods manufactured during calendar 1999 and subsequent years.
With respect to prior years, the Company is in ongoing discussions with Chinese
officials and has been assured that, notwithstanding statements made by tax
authorities, the VAT for these prior periods would not be charged to the
Company. As a result, the Company revised its estimate of VAT liability and
released an accrual of approximately $1.7 million into income in fiscal 2000.
The Company believes the ultimate resolution of this matter will not have a
material adverse effect on the Company's financial position, cash flows or
results of operations.
The Company is involved in a number of lawsuits relating to patent
infringement and intellectual property rights. The Company believes the lawsuits
are without merit and intends to defend against them vigorously. However, there
can be no assurances that the defense of any of these actions will be
successful, or that any judgment in any of these lawsuits would not have a
material adverse impact on the Company's business, financial condition and
result of operations.
F-17
<PAGE>
LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14 -- Interest and Other Income:
<TABLE>
<CAPTION>
Year ended March 31,
------------------------------------
2000 1999 1998
------- ------- ------
(In thousands)
<S> <C> <C> <C>
Interest income................................................. $ 796 $ 2,203 $2,122
Interest expense................................................ (959) (1,297) (530)
------- ------- ------
Interest income (expense), net.................................. $ (163) $ 906 $1,592
======= ======= ======
Foreign currency exchange gains (losses), net................... $ 899 $(1,366) $2,151
Gain on sale of touchpad technology............................. 1,525 -- --
Equity in net income (losses) of affiliated companies........... (3,584) 249 --
Write-off of investment......................................... (2,000) -- --
Other, net...................................................... (92) (290) 71
------- ------- ------
Other income (expense), net..................................... $(3,252) $(1,407) $2,222
======= ======= ======
</TABLE>
Other, net includes rental income of $251,000, $206,000 and $234,000 for the
years ended March 31, 2000, 1999 and 1998, while the related rental expense
amounted to $101,000, $106,000 and $114,000.
Note 15 -- Geographic Information:
The Company operates in one business segment, which is the design,
development, production, marketing and support of computer interface devices.
Geographic net sales information in the table below is based on the location of
the selling entity. Long-lived assets, primarily fixed assets, unamortized
intangibles, and investments are reported below based upon the location of the
asset.
Net sales to unaffiliated customers by geographic region were as follows:
<TABLE>
<CAPTION>
Year ended March 31,
------------------------------------
2000 1999 1998
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Europe............................................ $259,486 $195,913 $151,019
North America..................................... 253,502 196,778 184,232
Far East.......................................... 102,676 78,050 70,858
-------- -------- --------
Net sales......................................... $615,664 $470,741 $406,109
======== ======== ========
</TABLE>
Long-lived assets by geographic region were as follows:
<TABLE>
<CAPTION>
March 31,
---------------------
2000 1999
------- -------
(In thousands)
<S> <C> <C>
Europe............................................ $35,345 $40,474
North America..................................... 8,258 9,796
Far East.......................................... 24,267 23,460
------- -------
Total long-lived assets........................... $67,870 $73,730
======= =======
</TABLE>
F-18
<PAGE>
LOGITECH INTERNATIONAL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Substantially all of the Company's manufacturing operations are located in
Suzhou, China. These operations could be severely impacted by economic or
political instability in China, including instability which may occur in
connection with a change in the current leadership in China, by evolving
interpretation and enforcement of legal standards, by strains on the Chinese
transportation, communications, trade and other infrastructures related to the
rapid industrialization of an agrarian economy, by conflicts, embargoes,
increased tensions or escalation of hostilities between China and Taiwan, and by
other events.
Note 16 -- Other Disclosures Required by Relevant Swiss Law:
Balance Sheet Items
<TABLE>
<CAPTION>
March 31,
-----------------------
2000 1999
-------- --------
(In thousands)
<S> <C> <C>
Prepayments and accrued income................................... $ 6,205 $ 2,526
Non-current assets............................................... $ 67,869 $ 73,730
Pension liabilities, current..................................... $ 80 $ 141
Fire insurance value of property, plant, and equipment........... $108,833 $ 72,726
</TABLE>
Statement of Income Items
Total personnel expenses amounted to $60.3 million, $53.9 million and $50.4
million in 2000, 1999 and 1998.
F-19
<PAGE>
LOGITECH INTERNATIONAL S.A.
QUARTERLY SUMMARY
(Unaudited)
<TABLE>
<CAPTION>
Three months ended,
-----------------------------------------------------------------------------------------
Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
2000 1999 1999 1999 1999 1998 1998
---------- ---------- ---------- ---------- ---------- ---------- ----------
(In millions, except share and per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales........................... $ 176.0 $ 185.4 $ 133.2 $ 121.1 $ 147.4 $ 154.5 $ 95.8
Gross profit........................ 60.2 67.3 43.2 36.0 46.6 55.1 35.1
Operating expenses:
Marketing and selling............. 28.5 31.3 21.8 21.4 24.3 27.9 18.5
Research and development.......... 8.8 7.6 8.2 7.0 9.0 8.4 7.6
General and administrative........ 9.2 7.9 7.4 6.6 7.1 6.4 5.5
Acquired in-process research and
development (1).................. -- -- -- -- -- -- 6.2
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total............................. 46.5 46.8 37.4 35.0 40.4 42.7 37.8
Operating income (loss)............. 13.7 20.5 5.8 1.0 6.2 12.4 (2.7)
Loss on sale of product line (2).... -- -- -- -- (.4) (.4) (6.3)
Net income (loss)................... $ 9.3 $ 14.9 $ 5.2 $ .6 $ 4.2 $ 9.6 $ (7.1)
Shares used to compute net income
(loss) per share (3):
Basic............................. 4,096,878 3,983,060 3,935,526 3,893,412 3,856,800 3,872,886 3,880,176
Diluted........................... 4,641,740 4,340,528 4,095,034 4,001,732 4,046,290 3,940,312 3,880,176
Net income (loss) per share (3):
Basic............................. $ 2.29 $ 3.74 $ 1.32 $ .15 $ 1.09 $ 2.47 $ (1.84)
Diluted........................... $ 2.02 $ 3.43 $ 1.27 $ .15 $ 1.04 $ 2.42 $ (1.84)
Net income (loss) per ADS (3):
Basic............................. $ .23 $ .37 $ .13 $ .02 $ .11 $ .25 $ (.18)
Diluted........................... $ .20 $ .34 $ .13 $ .01 $ .10 $ .24 $ (.18)
<CAPTION>
June 30,
1998
----------
<S> <C>
Net sales........................... $ 73.0
Gross profit........................ 26.0
Operating expenses:
Marketing and selling............. 14.7
Research and development.......... 6.4
General and administrative........ 4.6
Acquired in-process research and
development (1).................. --
----------
Total............................. 25.7
Operating income (loss)............. .3
Loss on sale of product line (2).... (.1)
Net income (loss)................... $ .5
Shares used to compute net income
(loss) per share:
Basic............................. 3,859,250
Diluted........................... 3,995.316
Net income (loss) per share:
Basic............................. $ .13
Diluted........................... $ .13
Net income (loss) per ADS:
Basic............................. $ .01
Diluted........................... $ .01
</TABLE>
(1) In connection with the acquisition of Connectix Corporation's PC video
camera business, the Company recorded a one-time charge of approximately
$6.2 million for acquired in-process research and development.
(2) In fiscal 1998, the Company sold its scanner product line and recorded a
$3.2 million loss on the sale, net of estimates of the cost of inventory and
capital assets sold, costs to conclude certain contractual obligations, and
other exit costs. During the quarter ended September 30, 1998, the Company
wrote off $5.8 million related to the convertible note and common stock
investment in Storm. The additional expenses in fiscal 1999 primarily
relate to costs to conclude certain obligations exceeding management's
estimate made in 1998.
(3) The Company completed a two-for-one stock split which was effected in the
form of a stock dividend and distributed on July 5, 2000 payable to
stockholders of record as of July 4, 2000. All references to share and per-
share data for all periods presented have been adjusted to give effect to
this two-for-one stock split.
The following table sets forth certain quarterly financial information as a
percentage of net sales:
F-20
<PAGE>
<TABLE>
<CAPTION>
Three months ended,
------------------------------------------------------------------------------------------------
Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
2000 1999 1999 1999 1999 1998 1998 1998
-------- -------- --------- -------- -------- -------- --------- --------
<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.................... 34.2 36.3 32.4 29.7 31.6 35.7 36.6 35.6
Operating expenses:
Marketing and selling......... 16.2 16.9 16.4 17.7 16.5 18.1 19.3 20.1
Research and development...... 5.0 4.1 6.2 5.8 6.1 5.4 7.9 8.8
General and administrative.... 5.2 4.3 5.5 5.4 4.8 4.1 5.7 6.3
Acquired in-process research
and development.............. -- -- -- -- -- -- 6.5 --
-------- -------- --------- -------- -------- -------- --------- --------
Total......................... 26.4 25.3 28.1 28.9 27.4 27.6 39.4 35.2
Operating income (loss)......... 7.8 11.0 4.3 .8 4.2 8.1 (2.8) .4
Net income (loss)............... 5.3% 8.0% 3.9% .5% 2.8% 6.2% (7.4)% .7%
</TABLE>
F-21
