Logitech 2006 Annual Report Download

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ANNUAL REPORT 2006
IN
NO
VA
TION
25 YEARS OF INNOVATIVE DESIGN

Table of contents

  • Page 1
    IN NO VA TION 25 YEARS OF INNOVATIVE DESIGN ANNUAL REPORT 2006

  • Page 2
    PER SON AL PRODUCTS PEOPLE LOVE TO USE

  • Page 3
    HIGH LIGH TS FINANCIAL HIGHLIGHTS

  • Page 4
    ... of U.S. dollars) 54.7 41.0 45.1 16.2 7.1 99 00 01 30.0 02 03 04 05 06 OPERATING INCOME NET INCOME 1,120 857 782 SHARE PERFORMANCE (based on an initial investment of 100 Swiss francs) 566 618 428 427 100 99 112 00 109 01 100 02 63 03 90 04 98 05 136 06...

  • Page 5
    TO OUR SHAREHOLDERS EN We are delighted to present to you Logitech's Annual Report for Fiscal Year 2006. It has been another successful year for your Company, a year of accelerated revenue growth and many accomplishments. Exceeding the financial goals we had set for ourselves at the beginning of ...

  • Page 6
    S . OU ND More ways to appreciate digital music. Une gamme plus large pour apprécier la musique numérique. Noch mehr Möglichkeiten, digitale Musik zu geniessen. DIGITAL MUSIC ANYWHERE

  • Page 7
    ... to $181 million ($1.84 per share). Our gross margin was at the low end of our long-term target range of 32-34 percent, due to the strong growth in our audio category, which has historically included more lower-margin products. Even so, we were able to manage our operating expenses and deliver solid...

  • Page 8
    In fact, Logitech market capitalization grew from $2.9 billion to $3.7 billion in Fiscal 2006. We also invested in information systems that are important to our ability to manage our growth, and we used cash for research and development, operations, infrastructure and marketing to sustain our ...

  • Page 9
    ...adoption of voice and video communications over the Internet. • The increased complexity and richness of home-entertainment systems in the living room. • The growth and attractiveness of rich media and graphics-intensive applications on PCs and Macs. • The popularity of digital gaming, both on...

  • Page 10
    ... are storing and playing their digital audio on , and the numbers are increasing rapidly. their PC, MP3 player or iPod® Logitech's line of peripherals for these consumers has been very successful, contributing to 112 percent sales growth, year over year, for our audio business. The audio category...

  • Page 11
    M CO N MU ICA E T NIC MU OM TC NE ER INT NS IO AT SY EA DE MA Keep in touch with friends and family like never before. Encore plus facile de garder le contact avec vos amis et votre famille. Bleiben Sie wie nie zuvor mit Freunden und Familie in Verbindung.

  • Page 12
    ... our audio business. And strong sales of webcams have resulted in year-over-year growth of 36 percent in our video business. Among the innovative new video products introduced this year are the QuickCam® Fusion™ and QuickCam® for Notebooks Pro, as well as the Logitech® Video Effects™ software...

  • Page 13
    ... room and the new digital home. Its potential to become the universal control device for enjoying digital entertainment across the home is significant. Increasing numbers of people are using their PC to work or play with rich media-such as video, large graphical images, sound and games-as well as...

  • Page 14
    NOT EBO OK Performance and design for your notebook. Performance et design pour votre portable. Leistungsfähigkeit und Design für Ihr Notebook. SOLUTIONS FOR PORTABILITY AND COMFORT

  • Page 15
    ... began marketing the NuLOOQ navigator™ , an innovative device, used in conjunction with a mouse, that brings new levels of control to creative professionals who use the Adobe® Creative Suite 2 on their Mac. PC and console gaming continue to be popular around the world, and Logitech's range of...

  • Page 16
    O PR C DU I TIV TY N KI OR W ND TA OR MF CO IN E YL ST Become more productive while adding a sense of style and personality to your workspace. Soyez plus productif en ajoutant une touche de style et de personnalité à votre espace de travail. Produktiver werden und gleichzeitig dem individuellen ...

  • Page 17
    ... in October 1981, so this year marks the Company's 25th anniversary. The anniversary provides us an opportunity to reï¬,ect brieï¬,y on the past. Logitech was founded at the beginning of the personal computer industry-the same year in which the IBM PC was introduced-during a time of excitement and...

  • Page 18
    ... As the excitement and innovation move beyond just the PC or Mac to other platforms that enable a very rich digital lifestyle, Logitech's personal peripherals create new and inspiring opportunities, especially in the areas of digital audio, Internet communications and home entertainment. Ce qui est...

  • Page 19
    ... Bluetooth® wireless connectivity. And we partner with other companies on materials for creating the right look and feel of a product. Out of Après 25 ans, il est aussi intéressant de se pencher sur les raisons du succès de Logitech. L'un des facteurs-clés est sans doute notre «business model...

  • Page 20
    PLAY TIN EXTREME PERFORMANCE Command the game and play in style. Soyez maître du jeu et jouez avec classe. Das Spiel beherrschen-mit Stil.

  • Page 21
    .... While we retain leadership in our core product categories, we also are gaining significant momentum and leadership in new categories. Through employees who have been with the company for many years, we have the wisdom of experience, from our successes as well as our développons des produits...

  • Page 22
    ... professional experience. We added 400 new members to Logitech's professional staff in the past 12 months. And, three new senior executives complement our strong management team. They come from senior positions held in much larger companies, and will be key contributors to help Logitech scale as we...

  • Page 23
    ... end of Fiscal Year 2006- are a critical asset for Logitech. It is through their passion and dedication, contribution and consistent execution that we continue to offer innovative, high-quality products to delight our customers. Investing in their professional development is a focus for the Company...

  • Page 24
    CO NT ROL HOME ENTERTAINMENT MADE SIMPLE One-touch activity control to tame your home-entertainment system. Une télécommande universelle pour apprivoiser votre système de divertissement. Einmal berühren-und Sie haben Ihr Heimunterhaltungssystem im Griff.

  • Page 25
    ..., we have developed lasting relationships with leading distribution and retail partners, technology suppliers and platform companies. On the occasion of this 25th anniversary, we wish to offer them our sincere gratitude. Logitech's Board of Directors continues to serve the Company well, with signi...

  • Page 26
    D ES IGN DESIGNED TO MOVE YOUâ„¢

  • Page 27
    ..., who is retiring from the Board after seven years of service, including two years as our Lead Independent Director. We also wish to thank you for your sustained support and confidence in the Company as we build on our current solid foundation to create the Logitech of the next 25 years. DANIEL...

  • Page 28
    ... Brands, Mattel, Inc. Erh-Hsun Chang Former Senior Vice President, Worldwide Operations and General Manager, Far East Logitech (To be presented to the shareholders at the Annual General Meeting in June 2006) Kee-Lock Chua Managing Director, Walden International (To be presented to the shareholders...

  • Page 29

  • Page 30
    Visit www.logitech.com for a complete list of Logitech locations Holding Company Logitech International S.A. CH-1143 Apples Switzerland Americas Headquarters Logitech Inc. 6505 Kaiser Drive Fremont, CA 94555 United States Asia Pacific Headquarters Logitech Asia Pacific Ltd. Room 1408-10, China ...

  • Page 31
    LOGITECH฀FINANCIAL฀REVIEW

  • Page 32
    ... Governance Logitech's Report on Corporate Governance provides information on the Company's structure, its Board members and executive officers, and its corporate governance practices. This Report includes information required by the directives of the SWX Swiss Exchange for SWX-listed issuers...

  • Page 33
    Exhibit 15.1 LOGITECH INTERNATIONAL S.A. REPORT ON CORPORATE GOVERNANCE 20-F LISA

  • Page 34
    ... located in Asia. The Company's other operations support the business units and marketing and sales organizations through management of distribution centers and the product supply chain, and the provision of technical support, customer relations and other services. Logitech International...

  • Page 35
    ... of a company incorporated in Switzerland whose shares are listed on a stock exchange in Switzerland to notify the company and the relevant Swiss exchange of such holdings. Following receipt of this notification, the company is required to inform the public in Switzerland. The Company announced in...

  • Page 36
    ... of 20 million registered shares with a par value of CHF .5 each, to be fully paid-in. This authorization expires on June 24, 2006. Shareholders of the Company will be requested at the 2006 Annual General Meeting to extend this authorization until June 2008. The Board of Directors may restrict the...

  • Page 37
    ... the Company's shareholders. Refer to section 1.1 and "Logitech ADSs" below for information on Logitech's ADR program. Each registered share entitles its owner to dividends declared, even if the owner is not registered in the share register of the Company. Under Swiss law, the Company pays dividends...

  • Page 38
    ... of management and the directors of the Company with the interests of the shareholders. Accordingly, Logitech maintains stock purchase and stock option plans for its employees. Under the 1996 Stock Plan, the Company may grant to employees and directors, options to purchase registered shares or...

  • Page 39
    ... 31, 2006, Logitech had made no grants of restricted shares, stock appreciation rights or stock units. Under the 1988 Stock 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...

  • Page 40
    .... Erh-Hsun Chang, Taiwanese national, is a Director-elect and is being presented to the shareholders for election to the Board at the Company's 2006 Annual General Meeting. Until April 2006, Mr. Chang was the Company's Senior Vice President, Worldwide Operations and General Manager, Far East and is...

  • Page 41
    ... Nasdaq Stock Market. If elected by shareholders at the June 2006 Annual General Meeting, Mr. Chang would be considered a non-independent member of the Board. Other than as described in the biographies above, none of the Directors or Director-elect of the Company has significant business connections...

  • Page 42
    ...., the Swiss parent company and the Swiss banking subsidiary of the Julius Baer banking group. Mr. Gill serves on the boards of Tektronix, Inc. and Pixelworks, Inc., both publicly listed companies. 3.4 Elections and Terms of Office Directors are elected at the Annual General Meeting of Shareholders...

  • Page 43
    ...Mr. Gill has informed the Company of his intention to retire from the Board prior to the expiration of his current term. (5) Mr. Chang is being presented for election to the Board of Directors at the 2006 Annual General Meeting. 3.5 The Functioning of the Board of Directors Allocation of Powers and...

  • Page 44
    ... the budget, which must be approved by the Board of Directors; reviewing and certifying the Company's annual report; appointing, dismissing and promoting any employees of Logitech other than Executive Officers and the head of the internal audit function; taking immediate measures to protect the...

  • Page 45
    ... statements and "Operating and Financial Review and Prospects" contained in the Company's Annual Report on Form 20-F, and recommends that the Board of Directors submit these items to the shareholders' meeting for approval. 20-F In fiscal year 2006, the Audit Committee was composed of Gary...

  • Page 46
    ...the annual report, preparing the General Meeting of Shareholders and carrying out shareholders' resolutions; informing the appropriate authorities in the event of insolvency of the Company; and making resolutions regarding the payment of non fully paid-in shares. • • • The Board of Directors...

  • Page 47
    ...56 46 43 Swiss Italian Taiwanese U.S. French U.S. U.S. U.S. Chairman of the Board President and Chief Executive Officer, Director Sr. Vice President, Worldwide Operations and General Manager, Far East Sr. Vice President, Control Devices Sr. Vice President, Entertainment and Communications Sr. Vice...

  • Page 48
    ... held senior sales or marketing management positions in the United States, Japan and Asia Pacific. Prior to his 17-year tenure at Eastman Kodak, he worked for Mobil Oil Corporation in engineering. Mr. Quindlen holds a B.S. degree in chemical engineering from Villanova University in Pennsylvania...

  • Page 49
    ... has designed its compensation programs to attract, develop, retain and motivate the high caliber of executives, managers and staff that is critical to the long-term success of its business. Logitech's compensation package is composed of a base salary that is competitive to comparable companies in...

  • Page 50
    ... to the Company. Executive Officers are also eligible to participate in the Company's Employee Share Purchase Plan, under which employees may purchase registered shares with up to 10% of their earnings at the lower of 85% of the fair market value at the beginning or the end of each offering period...

  • Page 51
    ... Annual General Meeting. He will not receive any special compensation upon the end of his service as a director. (5) In fiscal year 2006, Marcel Stolk, former Senior Vice President of Sales & Marketing, resigned from Logitech in September 2005 and Gerald Quindlen joined as Mr. Stolk's replacement...

  • Page 52
    ... In accordance with Article 19 paragraph 2 of SESTO-FBC, the shareholding percentage is calculated based on the aggregate number of voting rights entered into the Swiss commercial register, which were 95,803,310 as of March 31, 2006. The Board of Directors has adopted share ownership guidelines for...

  • Page 53
    ... the fair market value of the Company's registered shares on the date of grant. Based on the Black-Scholes option-pricing model, these options have an estimated value of $2.7 million or $13.33 per share bringing his total fiscal year 2006 compensation to $3.9 million. Mr. De Luca did not receive any...

  • Page 54
    ... subscription right; change of the registered office of the Company; and dissolution without liquidation of the Company (merger). Convocation of the General Meeting of Shareholders The Board of Directors generally convenes a General Meeting of Shareholders. The convocation is made in writing and is...

  • Page 55
    ... that any shareholder who acquires more than 33 1⁄ 3% of the voting rights of a Swiss company whose shares are listed in whole or in part in Switzerland is required to make an offer to acquire all listed equity securities of the company at a minimum price. Logitech International S.A.'s Articles of...

  • Page 56
    .... Management must report to the Audit Committee the status of each project or service provided by the auditors. The Company's Independent Auditors attend all regular meetings of the Audit Committee. On a quarterly basis, PwC reports on the findings of its audit and/or review work. On an annual basis...

  • Page 57
    ...as press releases are available for download from the Logitech Web site at www.logitech.com. For no charge, a copy of the Company's filings can be requested via the following address or phone number: Logitech Investor Relations 6505 Kaiser Drive Fremont, CA 94555 USA Main 510-795-8500 20-F LISA CG...

  • Page 58
    ...Inc...Logitech Inc...ASIA PACIFIC LogiCool Co. Ltd...Logitech Electronic (India) Private Limited ...Logitech Far East, Ltd...Logitech Hong Kong, Ltd...Logitech Korea, Ltd...Logitech Service Asia Pacific Pte. Ltd...Logitech Singapore Pte. Ltd...Logitech Technology (Suzhou) Co., Ltd...Logitech Trading...

  • Page 59
    ... class Name of each exchange on which registered American Depositary Shares, each representing one registered share at par value CHF .5 per share Nasdaq National Market Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None The number of outstanding shares...

  • Page 60
    ...Operating and Financial Review and Prospects ...Directors, Senior Management and Employees ...Major Shareholders and Related Party Transactions ...Financial Information ...The Offer and Listing ...Additional Information ...Quantitative and Qualitative Disclosures about Market Risk ...Description of...

  • Page 61
    ... market trends affecting our products; our expectation that audio, video and advanced remote controls will continue to be the key growth drivers; our expectation that new products to be launched later in fiscal year 2007, particularly in the speaker and cordless categories, will carry higher margins...

  • Page 62
    PART I ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS Not applicable. ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE Not applicable. 4

  • Page 63
    ...: Net sales ...$1,796,715 Gross profit ...574,110 Operating expenses: Marketing and selling ...223,063 Research and development ...87,953 General and administrative ...64,183 Total operating expenses ...Operating income ...Net income ...Net income per share and ADS: Basic ...Diluted ...Shares used...

  • Page 64
    ... concerning exchange rates between the U.S. dollar and the Swiss franc based on the noon buying rate as reported by The Bank of New York, expressed in Swiss francs per U.S. dollars. The noon buying rate is the rate in New York City for cable transfers in selected currencies as certified for customs...

  • Page 65
    ... retail customers. Increases in OEM sales or decreases in retail sales relative to total sales may also negatively impact our gross margins. Gross margins can also vary due to consumer demand, competition, product life cycle, new product introductions, unit volumes, commodity and supply chain costs...

  • Page 66
    ... margins. Corded and Cordless. Microsoft is our main competitor in retail cordless (mice and desktops) and corded (mice and keyboards) categories. Microsoft's offerings include a complete line of mice, keyboards and desktops. Microsoft has significantly greater financial, technical, sales, marketing...

  • Page 67
    ... 2004, we expanded our product portfolio to include a new line of personal peripheral devices for home entertainment systems. We have greatly expanded our market share in this business recently. With many companies offering universal remote controls, our success will likely attract more competition...

  • Page 68
    ... delayed, or if we are unable to effectively implement the new software, we may be unable to timely or accurately process or access business and financial information stored on the system, which could adversely impact our daily operations and the timely reporting of financial results. We are exposed...

  • Page 69
    ...our new and existing product shipments could be delayed, any of which could harm our business, financial condition and operating results. For example, in the second half of fiscal year 2006 we were unable to meet demand for our V400 laser cordless mouse for notebooks resulting in lost sales, because...

  • Page 70
    ... sales and distribution channels in unfamiliar markets, with their own market characteristics and competition, particularly in Latin America, Eastern Europe and Asia; changes in value-added tax ("VAT") or VAT reimbursement; imposition of currency exchange controls; and delays from customs...

  • Page 71
    ... were listed on the Nasdaq National Market. The address of the Company's registered office is CH-1143 Apples, Switzerland; and the telephone number is 41-(0)21-800-53-54. The Company has manufacturing facilities in Asia and offices in major cities in North America, Europe and Asia Pacific. Important...

  • Page 72
    ... in digital imaging and the growth of the market for PC web cameras. With the success of its line of PC web cameras, the Company has emerged as a market leader in this product category. Labtec - Audio. In March 2001, Logitech acquired Labtec Inc., a publicly traded provider of PC speakers, headsets...

  • Page 73
    ...addition, Logitech offers wireless music solutions for the home and advanced remote controls for home-entertainment systems. Logitech also offers digital writing solutions, 3D control devices, and headphones for mobile phones. The Company's products, many with software included, provide user-centric...

  • Page 74
    ...music phones. For mobile entertainment platforms, Logitech offers complementing devices for iPod as well as other digital music players, including portable speakers, wireless headphones and noise canceling headphones. For home entertainment systems, Logitech offers a line of advanced remote controls...

  • Page 75
    ... system and geographical revenue mix. With manufacturing facilities in Asia, engineering teams in North America, Europe and Asia, major distribution centers in North America, Europe and Asia, as well as with sales and marketing offices in major cities worldwide, the Company has access to leading...

  • Page 76
    ...strengthen its leadership in the growing market for personal peripherals, linking people to the digital world wherever and whenever they need to access digital information to communicate, learn and play. The Company has historically served the installed base of PCs by offering innovative personal 18

  • Page 77
    ..., the Company will continue to lead the development of new technologies and to create product innovations such as the G7 and G5 Laser Gaming Mice. In 2005, Logitech included the Z-wave radio technology in its high end advanced remote controls, to enable simple home automation tasks based on this...

  • Page 78
    ... joysticks, gamepads and steering wheels; interactive gaming devices and accessories for game consoles; speakers, headphones and wireless music systems for digital audio; advanced remote controls; 3D motion controllers; headsets for mobile phones; and digital writing solutions. The Company's product...

  • Page 79
    ... GHz digital cordless technology and a sophisticated on-board microprocessor to provide message notifications to users. The V200 Cordless Mouse for notebook PCs features up to a 12-month battery life, a significant milestone for optimized battery performance in mice. All of Logitech's premium retail...

  • Page 80
    ... Logitech offers a full range of dedicated game controllers for PC gamers. The products address key game genres: joysticks for flying; steering wheels for driving; gamepads for sports, action, and adventure games; mice and keyboards for strategy, RPG, and first-person gaming; and headsets for online...

  • Page 81
    ... and force feedback, cordlessness, voice input, and video input, Logitech is enabling a broad range of new gaming experiences. To enable the Company's hardware controllers and promote high-quality support within games, Logitech also provides advanced software drivers and tools to game developers...

  • Page 82
    ... computer or other intelligent host; and a suite of driver, utility and user interface software modules and Web sites. The Company believes the software modules and Web support complete a seamless user-centric solution for information input, access and control. Logitech's products incorporate...

  • Page 83
    ... feedback joysticks and wheels, mice, keyboards, cameras and headsets. The SDKs are used in many of the top-selling console games and make it easy for users to leverage the latest features of Logitech's gaming peripherals. The Company's line of Harmony advanced universal remote controls is powered...

  • Page 84
    ... engineering center designs and develops the Company's web-connected advanced remote control products. In addition, Logitech's Canadian engineering center develops and maintains Logitech's on-line Smart State database of infrared codes and device characteristics used in programming the web-connected...

  • Page 85
    ...'s audio products are consumers, SoHo, and OEM customers. The Company's user markets for its PC web cameras are SoHo users, corporate buyers and consumers. Logitech's primary user markets are in North America, Europe and Asia Pacific. It also markets its products in Latin America, the Middle East...

  • Page 86
    ..., development, production, marketing and support of personal peripherals. Net sales to unaffiliated customers by geographic region were as follows (in thousands): 2006 Year ended March 31, 2005 2004 Europe ...North America ...Asia Pacific ...Total net sales ...Customer Service and Technical Support...

  • Page 87
    ... be able to offer pricing advantages on bundled hardware and software products that Logitech may not be able to offer. Video. The Company's main competitor in the U.S. for PC web cameras is Creative Labs, which offers a complete line of PC web cameras. In Europe, the Company's main competitors are...

  • Page 88
    ... EU market of electrical and electronic equipment containing certain hazardous materials including, lead, mercury, cadmium, chromium, and halogenated flame-retardants. RoHS is to take effect beginning July 2006 with a limited number of exceptions. Most Logitech products are affected by the directive...

  • Page 89
    ..., product marketing, technical support, administration and certain Logitech group activities including finance. The Company leases an additional 8,400 square feet in Morges, Switzerland to supplement the space of the owned facility; sales and marketing, including sales management, are located in...

  • Page 90
    ...,000 square feet. These facilities are 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 2013. During fiscal year 2006, the Company signed a lease...

  • Page 91
    ..., Logitech offers wireless music solutions for the home and advanced remote controls for home entertainment systems. Logitech also offers digital writing solutions, 3D control devices, and headphones for mobile phones. The Company sells its products to both original equipment manufacturers ("OEMs...

  • Page 92
    ... return, price protection, consumer rebates, volume-based incentives and other customer marketing programs. The estimated cost of these programs is accrued in the period the Company sells the product or commits to the program as a reduction to revenue or as an operating expense, if Logitech receives...

  • Page 93
    ... and retail customers allowing customers to receive a credit equal to a set percentage of their purchases of the Company's products for various marketing programs. The objective of these programs is to encourage advertising and promotional events to increase sales of the Company's products. Accruals...

  • Page 94
    ... future operating results; significant changes in the manner of its use of the acquired assets or the strategy for its overall business; significant negative industry or economic trends; significant decline in its stock price for a sustained period; and its market capitalization relative to net book...

  • Page 95
    ...were as follows (in thousands): 2006 2005 Change % Net sales by channel: Retail ...OEM ...Total net sales ...Net sales by product family: Retail - Cordless ...Retail - Corded ...Retail - Video ...Retail - Audio ...Retail - Gaming ...Retail - Other ...OEM ...Total net sales ...37 $1,588,033 208,682...

  • Page 96
    ... multimedia speakers and headset products for the PC, and mobile entertainment and communication platforms; gaming includes console and PC peripherals; and other is primarily comprised of the Company's advanced remote control, as well as 3D input device offerings. Net sales in fiscal year 2006...

  • Page 97
    ...of total sales in fiscal year 2006, the same proportion as last year. OEM units increased 16%, mainly driven by strong growth in corded mice sales to PC manufacturers, supported by increased OEM sales of gaming products. The timing and size of the opportunities for Logitech's OEM gaming products are...

  • Page 98
    ... with the design and development of new products and enhancements of existing products. The increase in research and development expense reflects the Company's commitment to continued investments in research and product development efforts. Investments in audio, video and remote control groups were...

  • Page 99
    ...retail sales growth across all major product categories, with console gaming and cordless mice contributing most significantly. The decline in OEM sales reflected the absence of sales to Sony of the EyeToyTM camera and the USB headsets for the Playstation®2. Approximately 53% of the Company's sales...

  • Page 100
    ... Strong demand for cordless, video, audio and console gaming products contributed to the increased sales, partially offset by reductions in sales of corded and PC gaming products. Contribution from the remote control line also benefited sales in the region. In Europe, retail sales also showed growth...

  • Page 101
    ... lower in fiscal year 2005, representing 13% of total sales compared to 20% in the prior year. Overall, retail margins improved in fiscal year 2005 compared with fiscal year 2004. In particular, gross margins for the Company's video products improved most significantly, primarily as a result of the...

  • Page 102
    ... to upgrade business applications and information technology systems, and legal costs related to patent infringement claims inherited with the Company's acquisition of Intrigue contributed to higher general and administrative spending in fiscal year 2005. The impact of exchange rate changes on...

  • Page 103
    ... and borrowings, as needed, under its credit facilities. The Company has credit lines with several European and Asian banks totaling $153.6 million as of March 31, 2006. As is common for businesses in European and Asian countries, these credit lines are uncommitted and unsecured. Despite the lack of...

  • Page 104
    ...plan in life insurance contracts. In addition, the Company received proceeds from the sale of an investment. The Company's purchases of property, plant and equipment in fiscal year 2005 were primarily normal expenditures for tooling costs, machinery and equipment, and computer equipment and software...

  • Page 105
    ... related to the Company's Swiss mortgage loan that matured in April 2004. Proceeds totaling $46.0 million were realized from the sales of shares pursuant to the Company's employee option and share purchase plans. Cash used in financing activities during fiscal year 2004 included treasury stock...

  • Page 106
    ... in the Asia Pacific region. In May 2004, the Company acquired Intrigue Technologies, Inc., a privately held provider of advanced remote controls. The purchase agreement provides for deferred payments to Intrigue's former shareholders based on the highest net sales from products incorporating...

  • Page 107
    ..., for which the goods or services are not received. These purchase obligations are primarily related to commitments for manufacturing equipment and software, as well as consulting, marketing and advertising arrangements. Although open purchase orders are considered enforceable and legally...

  • Page 108
    ... ...Marketing, sales and support ...Administration ...Total ... 807 5,081 678 642 7,208 645 5,108 639 506 6,898 459 4,506 511 384 5,860 Of the total number of employees as of March 31, 2006, 978 were in North America, 641 were in Europe and 5,589 were in Asia. None of the Company's U.S. employees...

  • Page 109
    ... was appointed to the A4Vision board of directors. A4Vision is a privately held company from which Logitech licenses face tracking software. The license agreement requires Logitech to pay a license fee based on the number of its products sold with A4Vision's licensed software. During fiscal year...

  • Page 110
    ...the Company has also used retained earnings to repurchase its shares. B. Significant Changes None. ITEM 9. THE OFFER AND LISTING A. Offer and Listing Details Stock Price Information Registered Shares Logitech's registered shares are listed and traded on the SWX Swiss Exchange, where the share price...

  • Page 111
    ... share price information for the Company's registered shares. The information presented is based on (i) the high and low closing sales prices quoted in Swiss francs for the registered shares on the SWX Swiss Exchange, and (ii) the U.S. dollar equivalent based on the noon buying rate on the trading...

  • Page 112
    ...principal trading market for Logitech's registered shares is the SWX Swiss Exchange, on which registered shares have been traded since 1988 under the symbol "LOGN." As of March 31, 2006, there were 95,803,310 registered shares issued and outstanding (including 4,477,613 shares held as treasury stock...

  • Page 113
    ... law. Purpose Article 2 of the Company's Articles of Incorporation establishes the principal objective of the Company as the coordination of the activity of its Swiss and foreign subsidiaries. Board of Directors Information concerning directors' power under the Company's bylaws and Swiss law appears...

  • Page 114
    ...Annual Report on Form 20-F. D. Exchange Controls As a Swiss corporation, Logitech is subject to requirements not generally applicable to United States corporations. Among other things, Logitech's issuances of capital stock generally must be submitted for approval at a general meeting of shareholders...

  • Page 115
    ... States holders of registered shares. Swiss Taxation Gain on Sale Under 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...

  • Page 116
    ... The Company is exposed to foreign currency exchange rate risk as it transacts business in multiple foreign currencies, including exposure related to anticipated sales, anticipated purchases and assets and liabilities denominated in currencies other than the U.S. dollar. Logitech transacts business...

  • Page 117
    ... system based on a basket of foreign currencies could lead to a further, gradual rise in the CNY's value. From time to time, the Company enters into foreign exchange forward contracts to hedge against exposure to changes in foreign currency exchange rates related to forecasted inventory purchases...

  • Page 118
    .... In August 2001, the Company completed a ten-for-one stock split for shares traded on the SWX Swiss Exchange. ADSs traded on the Nasdaq National Market were not affected. As a result, the ratio of ten ADSs to one registered share changed to a new ratio of one ADS to one registered share. On June 30...

  • Page 119
    ...'s Web site at www.logitech.com, and for no charge, a copy of the Company's code of ethics can be requested via the following address or phone number: Logitech Investor Relations 6505 Kaiser Drive Fremont, CA 94555 USA Main 510-795-8500 ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES Information...

  • Page 120
    ... certain information related to purchases made by Logitech of its equity securities (in thousands, except share and per share amounts): Total Number of Shares Purchased as Part of the Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Programs Period Average Price Paid...

  • Page 121
    ...among Logitech (Jersey) Limited, Logitech International S.A., Credit Suisse First Boston and Banque Cantonale Vaudoise. Guarantee dated June 8, 2001 by Logitech International S.A. 1996 Stock Plan, as amended. 1996 Employee Share Purchase Plan, as amended. Form of Director and Officer Indemnification...

  • Page 122
    ...-Oxley Act of 2002. Certification by Chief Executive Officer and Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002.* X X X * This exhibit is furnished herewith, but not deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or...

  • Page 123
    ...registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf. Logitech International S.A. Guerrino De Luca President and Chief Executive Officer CG Mark J. Hawkins Chief...

  • Page 124
    ... to the General Meeting of Logitech International S.A., Apples, Switzerland ...Consolidated Balance Sheets - March 31, 2006 and 2005 ...Consolidated Statements of Income - Year Ended March 31, 2006, 2005 and 2004 ...Consolidated Statements of Cash Flows - Year Ended March 31, 2006, 2005 and 2004...

  • Page 125
    ... statements are the responsibility of the Board of Directors of Logitech International S.A. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We confirm that we meet the Swiss legal requirements concerning professional qualification and...

  • Page 126
    ... ...Long-term debt ...Other liabilities ...Total liabilities ...Commitments and contingencies Shareholders' equity: Registered shares, par value CHF .5 - 115,803,310 authorized, 35,780,930 conditionally authorized, 95,803,310 issued and outstanding at March 31, 2006 and 2005 ...Additional paid-in...

  • Page 127
    LOGITECH INTERNATIONAL S.A. CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) Year ended March 31, 2006 2005 2004 Net sales ...Cost of goods sold ...Gross profit ...Operating expenses: Marketing and selling ...Research and development ...General and administrative ...Total ...

  • Page 128
    ...) of short-term debt ...Repayments of long-term debt ...Purchases of treasury shares ...Proceeds from sale of shares upon exercise of options and rights ...Net cash used in financing activities ...Effect of exchange rate changes on cash and cash equivalents ...Net increase (decrease) in cash...

  • Page 129
    ...OF CHANGES IN SHAREHOLDERS' EQUITY (In thousands) Registered shares Shares Amount March 31, 2003 ...Net income ...Cumulative translation adjustment ...Deferred realized hedging gains ...Total comprehensive income ...Tax benefit from exercise of stock options ...Purchase of treasury shares ...Sale of...

  • Page 130
    ... offering in the form of American Depositary Shares ("ADSs") and listed the ADSs on the Nasdaq National Market. The Company's registered office is located in Apples, Switzerland. The Company has manufacturing facilities in Asia and offices in major cities in North America, Europe and Asia Pacific...

  • Page 131
    ... offerings, including price protection, consumer rebates, volume-based incentives and other customer marketing programs. Expected future product returns are estimated, and periodically adjusted, based on analyses of historical trends by customer and by product, distributor and retailer inventory...

  • Page 132
    ... of cost or market. Cost is computed on a first-in, first-out basis. The Company records write-downs of inventories which are obsolete or in excess of anticipated demand or market value based on a consideration of product life cycle stage, technology trends, product development plans, component cost...

  • Page 133
    ... estimated fair value of publicly traded financial equity instruments are determined by quoted market prices. Net Income per Share and ADS Basic net income per share and ADS is computed by dividing net income by the weighted average outstanding registered shares. Diluted net income per share and ADS...

  • Page 134
    ...$ 1.35 $ The fair value of employee stock options granted and shares purchased under the Company's purchase plans was estimated using the Black-Scholes option-pricing model applying the following assumptions and values: Purchase Plans 2005 Year ended March 31, Stock Option Plans 2004 2006 2005 2004...

  • Page 135
    ... held provider of advanced remote controls, based in Mississauga, Canada. The acquisition is part of the Company's strategy to pursue new opportunities in the living room environment, positioning Logitech at the convergence of consumer electronics and personal computing in the digital living room...

  • Page 136
    ...database, which support infrared-controlled devices made by manufacturers. The acquired technology relates to developed software used in Intrigue's line of advanced remote controls. Trademark/trade name relates to the Harmony brand name under which the remote controls are sold and which Logitech has...

  • Page 137
    ..., net. A4Vision is a privately held company from which Logitech licenses face tracking software. The license agreement requires Logitech to pay a license fee based on the number of its products sold with A4Vision's licensed software. During fiscal year 2006, expenses incurred for license fees to...

  • Page 138
    ... with Logitech's acquisition of Intrigue Technologies in May 2004, the Company recorded goodwill of $23.2 million based on estimated fair values at the date of acquisition. In the fourth quarter of fiscal year 2005, goodwill was reduced by $.3 million for purchase price adjustments related to...

  • Page 139
    ...registered shares for use in acquisitions, mergers and other transactions, valid through June 24, 2006. Shareholders of the Company will be requested at the 2006 Annual General Meeting to extend this authorization until June 2008. In addition, the Company has conditionally authorized shares totaling...

  • Page 140
    ...March 31, 2006, a total of 7,118,322 options were available for grant under the 1996 Stock Plan. Under the 1988 Stock 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...

  • Page 141
    LOGITECH INTERNATIONAL S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) A summary of activity under the stock option plans is as follows (exercise prices are weighted averages): 2006 Number Exercise Price Year ended March 31, 2005 Exercise Number Price 2004 Number Exercise Price ...

  • Page 142
    ...related to investment performance have not been significant to date. Note 10 - Income Taxes: The Company is incorporated in Switzerland but operates in various countries...(in thousands): 2006 Year ended March 31, 2005 2004 CG Current: Swiss ...Foreign ...Deferred: Swiss ...Foreign ...Total ... $ 3,...

  • Page 143
    ... the weighted average tax rate is reconciled below (in thousands): 2006 Year ended March 31, 2005 2004 Expected tax provision at weighted average rate ...Change in valuation allowance ...Research and development tax credits ...Other ...Total provision for income taxes ... $29,073 - (140) (184) $28...

  • Page 144
    ...as cash flow hedges) to hedge against exposure to changes in foreign currency exchange rates related to forecasted inventory purchases by subsidiaries. Hedging contracts generally mature within three months. Gains and losses in the fair value of the effective portion of the contracts are deferred as...

  • Page 145
    ...late 2006. In those countries which have enacted legislation, the Company expects to incur costs for managing and recycling historical waste equipment and make provisions for costs related to future waste. These costs are expected to be based on the Company's estimated market share of the total cost...

  • Page 146
    ...three customers represented 14%, 12% and 11% of total accounts receivable. Net sales by product family for fiscal years 2006, 2005 and 2004 were as follows (in thousands): 2006 Year ended March 31, 2005 2004 Retail - Cordless ...Retail - Corded ...Retail - Video ...Retail - Audio ...Retail - Gaming...

  • Page 147
    ... (in thousands): March 31, 2006 2005 Europe ...North America ...Asia Pacific ...Total long-lived assets ... $ 46,557 57,340 40,390 $144,287 $27,329 39,929 29,514 $96,772 The United States, China and Switzerland each represents more than 10% of the Company's total consolidated long-lived assets at...

  • Page 148
    ...100.0% 100.0% Gross profit ...32.1 31.4 32.3 31.9 34.1 33.2 34.8 33.6 Operating expenses: Marketing and selling ...13.8 13.7 11.6 11.3 14.8 14.9 12.6 12.8 Research and development ...6.3 5.1 3.9 4.9 6.3 5.3 4.0 5.1 General and administrative ...4.5 3.5 2.7 3.9 4.9 4.0 3.0 4.0 Total operating expense...

  • Page 149
    Exhibit 12.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-100854) of Logitech International S.A. of our reports dated May 19, 2006 relating to the financial statements, which appear in ...

  • Page 150
    ... in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have...

  • Page 151
    ... in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have...

  • Page 152
    ...J. Hawkins, the Chief Financial Officer of the Company, each certify that, to the best of his or her knowledge: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and (2) the information contained in the Report fairly presents, in all material respects...

  • Page 153
    LOGITECH INTERNATIONAL S.A., APPLES SWISS STATUTORY FINANCIAL STATEMENTS CG 20-F

  • Page 154
    LOGITECH INTERNATIONAL S.A., APPLES SWISS STATUTORY FINANCIAL STATEMENTS TABLE OF CONTENTS Page Swiss Statutory Balance Sheets (unconsolidated) ...Swiss Statutory Statements of Income (unconsolidated) ...Notes to Swiss Statutory Financial Statements ...Proposal of the Board of Directors for ...

  • Page 155
    LOGITECH INTERNATIONAL S.A., APPLES SWISS STATUTORY BALANCE SHEETS (unconsolidated) (In thousands of Swiss francs) March 31, 2006 2005 ASSETS Current assets: Cash ...Short-term bank deposits ...Accrued interest and other receivables ...Advances to and amounts receivable from group companies ......

  • Page 156
    LOGITECH INTERNATIONAL S.A., APPLES SWISS STATUTORY STATEMENTS OF INCOME (unconsolidated) (In thousands of Swiss francs) Year ended March 31, 2006 2005 Dividend income ...CHF 62,000 Royalty fees ...45,682 Interest income from third parties ...1,788 Interest income from subsidiaries ...6,657 ...

  • Page 157
    ... 2004, the Company announced a new buyback program of up to CHF 250,000,000 of the Holding Company's registered shares. The program expires at the Company's 2006 Annual General Meeting. In June 2004, the Company's shareholders approved a proposal authorizing the number of share repurchases to exceed...

  • Page 158
    LOGITECH INTERNATIONAL S.A., APPLES NOTES TO SWISS STATUTORY FINANCIAL STATEMENTS-(Continued) In June 2005, the Board of Directors authorized the repurchase of up to CHF 300,000,000 of the Holding Company's registered shares/ADSs. This program expires at the Company's 2008 Annual General Meeting. At...

  • Page 159
    LOGITECH INTERNATIONAL S.A., APPLES NOTES TO SWISS STATUTORY FINANCIAL STATEMENTS-(Continued) Note 7 - Movements on Retained Earnings: During fiscal years 2005 and 2006, movements on retained earnings were as follows (in thousands): Year ended March 31, 2006 2005 Retained earnings at the beginning ...

  • Page 160
    ... Proposal of the Board of Directors for appropriation of retained earnings were as follows during fiscal years 2005 and 2006 (in thousands): Year ended March 31, 2006 2005 Proposal of the Board of Directors To be carried forward ...CHF 352,032 Resolution of the General Assembly CHF 327,892 LISA...

  • Page 161
    ... and notes) of Logitech International S.A. for the year ended March 31, 2006. These financial statements are the responsibility of the board of directors. Our responsibility is to express an opinion on these financial statements based on our audit. We confirm that we meet the legal requirements...

  • Page 162
    ...for฀a฀complete฀list฀of Logitech฀locations Holding฀Company Logitech฀International฀S.A. CH-1143฀Apples Switzerland Americas฀Headquarters฀ Logitech฀Inc. 6505฀Kaiser฀Drive Fremont,฀CA฀94555 United฀States Asia฀Pacific฀Headquarters฀ Logitech฀Asia฀Pacific฀Ltd...