UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||||
| For the fiscal year ended | March 31, | ||||||||||
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||||
| For the Transition Period from to | |||||||||||
Commission File Number: 0-29174
LOGITECH INTERNATIONAL S.A.
(Exact name of registrant as specified in its charter)
| Canton of Vaud, | Switzerland | None | |||||||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||
Logitech International S.A.
EPFL - Quartier de l'Innovation
Daniel Borel Innovation Center
1015 Lausanne,, Switzerland
c/o Logitech Inc.
7700 Gateway Boulevard
Newark, California94560
(Address of principal executive offices and zip code)
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbols(s) | Name of each exchange on which registered | ||||||||||||
| Registered Shares | SIX Swiss Exchange | |||||||||||||
| Registered Shares | LOGI | Nasdaq Global Select | ||||||||||||
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý
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. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data file required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ý | Accelerated filer | o | Non-accelerated filer | o | Smaller reporting company | Emerging Growth Company | ||||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standard sstandards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C 7262(b)) by the registered public accounting firm that prepared or issued its audit report.Yes ☒ No o
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. Yes ☐ No ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). Yes ☐ No ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the voting shares held by non-affiliates of the registrant, based upon the closing sale price of the shares on September 27, 2019,30, 2022, the last business day of the registrant's second fiscal quarter on the Nasdaq Global Select Market, was $6,703,496,937.$7,408,622,598. For purposes of this disclosure, voting shares held by persons known to the Registrant to beneficially own more than 5% of the Registrant's shares and shares held by officers and directors of the Registrant have been excluded because such persons may be deemed to be affiliates. In the case of 5% or greater shareholders, we have not deemed such shareholders to be affiliates unless there are facts and circumstances which would indicate that such shareholders exercise any control over the Registrant, or unless they hold 10% or more of the Registrant’s share capital outstanding. This determination is not necessarily a conclusive determination for other purposes.
As of May 18, 2020,3, 2023, there were 167,817,568158,737,710 shares of the Registrant's share capital outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for the 20202023 Annual Meeting of Shareholders are incorporated herein by reference in Part III of this Annual Report on Form 10-K to the extent stated herein. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrant's fiscal year ended March 31, 2020.
TABLE OF CONTENTS
| Page | ||||||||
| Part I | ||||||||
| Part II | ||||||||
| Part III | ||||||||
| Part IV | ||||||||
In this document, unless otherwise indicated, references to the "Company", "Logitech""Company," "Logitech," "we," "our," and "us" are to Logitech International S.A. and its consolidated subsidiaries. Unless otherwise specified, all references to U.S. Dollar, Dollar or $ are to the United States Dollar, the legal currency of the United States of America. All references to CHF are to the Swiss Franc, the legal currency of Switzerland.
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 the property of their respective owners.
The Company's fiscal year ends on March 31. Interim quarters are generally thirteen-week periods, each ending on a Friday. For purposes of presentation, the Company has indicated its quarterly periods end on the last day of the calendar quarter.
The term “Sales” means net sales, except as otherwise specified.
All references to our websites are intended to be inactive textual references only, and the content of such websites do not constitute a part of and are not intended to be incorporated by reference into this Annual Report on Form 10-K.
Logitech International S.A. | Fiscal 2023 Form 10-K | 1
FORWARD-LOOKING INFORMATION
This Annual Report on Form 10-K contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on beliefs of our management as of the filing date of this Annual Report on Form 10-K. These forward-looking statements include, among other things, statements related to:
•Our strategy for growth, future revenues, earnings, cash flow, uses of cash and other measures of financial performance, and market position;
•Our business strategy and investment priorities in relation to competitive offerings and evolving consumer demand trends affecting our products and markets, current and future worldwide geopolitical, economic and capital market conditions, including fluctuations in currency exchange rates, inflation, and current and future general regional economic conditions for fiscal year 2021 and beyond;downturns;
•Our expectations regarding our restructuring efforts, including the timing thereof;
•Long-term, secular trends that impact our product categories;
•The scope, nature or impact of acquisition, strategic alliance, and divestiture activities and restructuring of our organizational structure;
•Our expectations regarding the success of our strategic acquisitions, including integration of acquired operations, products, technology, internal controls, personnel and management teams;
•Our expectations regarding our effective tax rate, future tax benefits, tax settlements, the adequacy of our provisions for uncertain tax positions;
•Our expectations regarding our potential indemnification obligations, and the outcome of pending or future legal proceedings and tax audits;
•Our business anddevelopment, product plans and development and product innovation, and their impact on future operating results and anticipated operating costs for fiscal year 20212024 and beyond;
•Opportunities for growth market opportunities and our ability to execute on and take advantage of them;them, including our marketing initiatives and strategy and our expectations regarding the success thereof;
•Potential tariffs, their effects and our ability to mitigate their effects;
•Our expectations regarding our share buybackrepurchase and dividend programs;
•The sufficiency of our cash and cash equivalents, cash generated from operations, and available borrowings under our bank lines of credit to fund capital expenditures and working capital needs; and
•The effects of environmental and other laws and regulations in the United States and other countries in which we operate; and
Forward-looking statements also include, among others, those statements including the words "anticipate", "believe", "could", "estimate", "expect", "forecast", "intend", "may", "plan", "project", "predict", "should","anticipate," "believe," "could," "estimate," "expect," "forecast," "intend," "may," "plan," "project," "predict," "should," "will" and similar language. These statements reflect our views and assumptions as of the date of this Annual Report on Form 10-K. All forward-looking statements involve risks and uncertainties that could cause our actual performance to differ materially from those anticipated in the forward-looking statements depending on a variety of factors. Important information as to these factors can be found in this Annual Report on Form 10-K under the headings of “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Overview”,Operations,” “Overview of our Company,” “Critical Accounting Estimates” and “Liquidity and Capital Resources”,Resources,” among others. Factors that might cause or contribute to such differences include, but are not limited to, those discussed under Item 1A Risk"Risk Factors," as well as elsewhere in this Annual Report on Form 10-K and in our other filings with the U.S. Securities and Exchange Commission, or "SEC." You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document.
Logitech International S.A. | Fiscal 2023 Form 10-K | 2
PART I
ITEM 1. BUSINESS
Company Overview
Logitech’s mission is to help all people pursue their passions in a way that is good for people and the trading symbol LOGI. References in this Annual Report on Form 10-K to the "Company," "Logitech," "we," "our,"planet. We design, manufacture and "us" refer tosell products that help businesses thrive and bring people together when working, creating, gaming and streaming. We sell these products through a number of brands: Logitech, International S.A.Logitech G (including ASTRO Gaming, Streamlabs, and its consolidated subsidiaries.Blue Microphones) and Ultimate Ears.
•Creativity & Productivity: personal computer ("PC") mice and presentation tools (reported as Pointing Devices), PC keyboards and keyboard/mouse combination products (reported as Keyboards & Combos), PC-based webcams including streaming cameras (reported as PC Webcams), and tablet keyboards and styluses (reported as Tablet & Other Accessories);
•Gaming: gaming mice, keyboards, headsets, steering wheels and other control devices, and Streamlabs services;
•Video Collaboration: conference cameras for meeting rooms, webcams and headsets;
•Music-related products include wireless speakers (reported as Mobile Speakers), and PC speakers, headsets, microphones and earphones (reported as Audio & Wearables).
These products are all classified under a single operating segment: Peripherals. For more information about segments and geographic areas, please refer toPeripherals (see Note 15 ofto our consolidated financial statements included in this Annual Report on Form 10-K. Our products participate in five large markets: Creativity & Productivity, Gaming, Video Collaboration, Musicstatements). They also are compatible with many cloud or cloud-based services: video conferencing platforms (e.g. Zoom, Microsoft Teams, Google Meet); esports or video games (e.g. League of Legends, Call of Duty, Valorant); music streaming platforms (e.g. Spotify, Apple Music); content streaming platforms (e.g. Twitch, YouTube); and Smart Home. creativity and productivity platforms (e.g. Google Workplace, Adobe Creative Cloud).
We sell our products to a broad network of domestic and international customers, includingin the Americas, Europe, the Middle East, and Africa ("EMEA") and Asia Pacific. This includes direct sales to retailers, e-tailers, and e-tailersend consumers through our e-commerce platform, and indirect sales to end customers through distributors. Our worldwide channel network includes consumer electronics distributors, retailers, mass merchandisers, specialty stores, computer
From time to time, we may seek to partner with or acquire, when appropriate, companies that have products, personnel, and telecommunications stores, value-added resellers and online merchants.
Business Strategy
Logitech's foundation for future growth is built on five core capabilities that apply to all of our product categories:
•Design;
•Engineering;
•Go-to-market;
•Marketing; and
•Operations.
Design
Logitech International S.A. | Fiscal 2023 Form 10-K | 3
Engineering
Our decades-long expertise in key engineering disciplines such as sensors, acoustics, optics, wireless, and power management is a core competitive advantage of Logitech. Furthermore, we continue to extend our engineering capabilities into more advanced technologies such as software, apps, cloud, data analytics, machine learning, artificial intelligence ("AI") and machine learning.some core building blocks of navigation and tracking in augmented reality ("AR") or virtual reality ("VR"). Our engineering team has expertise in developing products for a broad array of platforms such as PCs, mobilebringing together these many technologies, across hardware and personal voice assistants (such as Amazon Alexa and Google Assistant).software to develop an innovative portfolio. These engineering capabilities combined with our award-winning design team form the basis of Logitech's key innovation engine.
Go-To-Market
Marketing
Operations
Logitech’s operations capability consists of a hybrid model of in-house manufacturing (including a wholly-owned facility in Suzhou, China) and third-party contract manufacturers (principally in Asia), which allows us to effectively respond to rapidly changing demand, and leverage economies of scale.scale, protect intellectual property, and offer high quality production in even the most sophisticated of products. Our supply chain’s extensive global reach, key distribution channels, adoption of factory automation and strategic business relationships combined with extensive analytic modeling expertise, optimization tools and global processes provide a competitive advantage against many of our competitors.
Environmental Sustainability
In recent years, we have accelerated our climate strategy, focused on eliminating our carbon footprint through Reduce, Renew, Restore, and Rethink programs. Reduce focuses on our life-cycle carbon footprint using Design for Sustainability ("DfS") principles across our value chain. Renew motivates us to drive ambitious uptake of renewable electricity and transition away from fossil fuels. In order to support and restore climate-impacted communities and ecosystems, the Restore lever supports annual investment in carbon offsets and removals. We are also Rethinking how we do business, innovating our materials, supply chains, and go-to-market opportunities.
Products
Logitech designs, manufactures and markets products that allowhelp businesses thrive and bring people to connect through computing,together when working, creating, gaming video, music, and other digital platforms. The large majority of our revenue has historically been derived from sales of our productsstreaming, for use by consumers.consumers and enterprise customers.
Creativity & Productivity
Pointing Devices: Logitech offers a variety of pointing devices. Some of our key products in this category include:
•The Logitech MX Master 3 and MX Anywhere 2S3 wireless mice, our flagship wireless mouse products. Enabled with Logitech Flow cross-computer control software and Logi Bolt cross-operating system connectivity, these products represent the new paradigm for precise, fast, comfortable cross-computer digital navigation.navigation and digital creativity.
Logitech MX Ergo, a wireless trackball that offers personalized comfort with a unique adjustable hinge, precision tracking and multi-device connectivity.International S.A. | Fiscal 2023 Form 10-K | 4
•The Logitech Wireless Mouse M325,M650, which offers micro-precisea new precise scrolling wheel, an 18-month battery life, Logi Bolt connectivity compatible with any operating system, side-buttons and comfortable design.design, and is available in Large, Medium and left-handed versions with sustainable materials.
•The Logitech Wireless Mouse M185, a wireless mouse with nano receiver technology that is compatible with any computer.
•The Logitech Pebble Mouse, a wireless mobility mouse with dual connectivity (BT and unifying nano technology) that is compatible with any computer.
•Two recently introduced mice, Logitech Lift vertical mouse with Logi Bolt wireless technology and the new smart wheel available in right and left-handed version, and Pop Mouse for younger generations that offers more style at the desk.
Keyboards & Combos: Logitech offers a variety of corded and cordless keyboards, living room keyboards, and combos (keyboard-and-mouse combinations). Some of our key products in this category include:
•The Logitech Wireless Combo MK270, a full-size keyboard and mouse combination with a tiny USB receiver.
•The Logitech MX Keys Wireless keyboard, a premium backlit keyboard with customizable keys to directly access directly menus and shortcuts within leading creativity and productivity apps. We recently added the MX Keys mini wireless keyboard ideal for smaller spaces and creators and Logitech MX mechanical wireless keyboard.
•The Logitech K380 wireless minimalist keyboard with multi-switch functionality to easily navigate from one screen to another (from PC to Phone to tablets) that is compatible with any computer.
PC Webcams: Our PC Webcams category comprises PC-based webcams targeted primarily at consumers.video conferencing users purchasing for individual use. A key market driver includes people upgrading their work-from-home video conferencing setup. The Logitech HD Pro Webcam C920 and 1080P Pro Stream Webcam, which offer razor-sharp HD 1080p video recordingsC922 are key products in this category and stereo sound, were top revenue-generating webcams during fiscal year 2020.we recently added Logitech Brio 300 and Brio 500 to the portfolio.
Tablet & Other Accessories: Our Tablet & Other Accessories category includes keyboards for tablets and smartphones as well as other accessories for mobile devices. These products are mostly for iPads but are also for select Samsung and other Android tablets. Some of our key products in this category include:
•The Logitech Slim Combo Backlit Keyboard Case with Smart ConnectorTouch for the iPad 9th Generation, iPad Air, iPad Pro 12.911 and iPad Pro 10.5 that provides thin and light front and back protection,12.9, is our newest design offering a detachableSmart Connected backlit full-size keyboard, any-angle kickstand for flexible viewing angles and a multi-angle standtrackpad for optimal viewinggestures, clicks and face-time.navigation.
•The Logitech SlimRugged Folio Keyboard for the iPad Pro 12.9 and 11, bringing a bluetooth backlit keyboard with a folio design for optimal working and viewing angle, light front and back protection and an Apple Pencil holder. The Logitech Slim Folio Keyboard for the 7th generation iPad for a light protection folio with a bluetooth keyboard.
•The Combo TouchLogitech Slim Folio Keyboard for the iPad 7th GenerationPro 11 and iPad Air, which is our newest12.9, bringing a Bluetooth backlit keyboard with a folio design offering a Smart Connected backlit full-size keyboard, any-angle kickstand for flexibleoptimal working and viewing anglesangle, light front and a trackpad for gestures, clicksback protection and navigation.
an Apple Pencil holder. The Logitech Keys-To-Go, an ultra-portable, stand-aloneSlim Folio Keyboard for the 9th generation iPad for a light protection folio with a Bluetooth keyboard.
•The Rugged Combo Keyboard and Rugged Combo Touch, Made for Education are designed to provide the best keyboard and touchpad experience for the iPad Entry 9th generation in classrooms or at home, featuring drop protection, secure sealed keyboard and any angle viewing.
Gaming
Logitech G provides products for both gamers of all levels with industry-leadingand creators, including mice, keyboards, mice, headsets, and simulation products such as steering wheels, and flight sticks, incorporatingin addition to streaming software through Streamlabs. Incorporating innovative design and advanced technologies,. Some some of ourthe key products and solutions in this category include:
•The Logitech G915G PRO X Superlight Wireless Gaming Mouse that was designed in collaboration with the world's top esports professionals, featuring our LIGHTSPEED Wireless, RGB Mechanical Gaming Keyboard, which features high-performance low-profile mechanical switches that provide all the speed, accuracy,TM professional grade wireless technology, and performance of traditional switches,weighing in at half the height.less than 63 grams.
• |
The Logitech G29 Driving Force SteeringPro Racing Wheel for PCthat features our exclusive TRUEFORCE feedback system that connects directly to in-game physics, and Sony PlayStation 4, which features a powerful dual-motor force feedback transmission, hand-stitched leather-wrapped rim, and stainless steel throttle, brake and clutch pedals for an ultra-realistic driving experience.our new Direct Drive motor.
•The ASTRO Gaming is a performance gaming and lifestyle brand focused on the console gaming peripherals market with a cross-platform lineup consisting of four primary headset models and a high-performance controller for PlayStation 4 and PC:
Logitech International S.A. | Fiscal 2023 Form 10-K | 5
•Streamlabs software which provides streaming and sound quality at a more accessible price point.monetization tools for content creators to manage their audience and broadcast.
Video Collaboration
The Video Collaboration category includes Logitech’s ConferenceCams,conference room cameras, which combine enterprise-quality audio and high definition (HD) 1080p("HD") 4K video with affordability to bring video conferencing to businesses of any size.size, as well as state of the art webcams and headsets that turn any desktop into an instant collaboration space. Our key products in this category include:
•Logitech Rally which offers best-in-class video conferencing with Ultra HD 4K video and professional audio that easily turns medium- to large-sized conference rooms into video-enabled collaboration rooms.
• • |
Music
Mobile Speakers: Our Mobile Speakers category comprisesis a portfolio of portable wireless Bluetooth and Wi-Fi speakers.speakers for music on the go. The top revenue-generating product line in theour Mobile Speakers category during fiscal year 2020 2023 was the Ultimate Ears WONDERBOOM,BOOM 3 ("BOOM3"), our smaller sizedruggedized portable bluetoothBluetooth wireless speaker. InDuring fiscal year 2020 we refreshed2023, our collection of portable Bluetooth speakers included WONDERBOOM3, BOOM3, MEGABOOM3, and our largest most powerful speaker HYPERBOOM that delivers the product with WONDERBOOM2, which added an outdoor functionality to the immersive sound experience. Both generations of the WONDERBOOM product line remainedloudest and most rich audio performance in the channel for the full year alongside Ultimate Ears BOOM3 and MEGABOOM3 which we launched in fiscal year 2019. In March 2020, we added a new powerful party speaker, HYPERBOOM, to the portfolio of bluetooth speakers. This speaker has the loudest audio performance of the portfolio, combined with a new easy-switch audio source functionality that enables fast pairing to four different devices.portfolio.
Audio & Wearables: Our Audio & Wearables category comprises PC speakers, PC headsets, in-ear headphones, and premium wireless audio wearables designed to enhance the audio experience, and studio-quality microphonesBlue Microphones for professionals and consumers. We offer both the Jaybird wireless audio wearables for sports and active lifestyles and our custom in-ear headphones, made by Ultimate Ears. Jaybird is a digitally native brand that pioneered the wireless in-ear headphone category and continues to be a leading brand in headphones made for athletes. Designed for sport & IPX 7 rated, Jaybird’s Tarah Pro, Tarah, X4 and Run XT offer great sound with the durability that athletes demand. All Jaybird products are accompanied by software supported on both Android and iOS that offers a rich personalized listening experience.
Research and Development
We recognize that continued investment in product research and development (including design) is critical to facilitate innovation of new and improved products, technologies and experiences. Our research and development expenses for fiscal years 2020, 20192023, 2022 and 20182021 were $177.6$280.8 million $161.2, $291.8 million and $143.8$226.0 million, respectively.
We expect to continue to devote significant resources to research development and design,development, including devices for digital platforms, video communications, wireless technologies, power management, and user interfaces and device database management to sustain our competitive position.
Sales and Distribution
Principal Markets
Sales by geographic region (based on customers' location) for fiscal years 2020, 20192023, 2022 and 2018 (based on the customers' location)2021 are as follows (in thousands):
| Year Ended March 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Americas | $ | 1,930,908 | $ | 2,317,941 | $ | 2,206,552 | ||||||||||||||
| EMEA | 1,299,657 | 1,724,027 | 1,735,682 | |||||||||||||||||
| Asia Pacific | 1,308,253 | 1,439,133 | 1,310,045 | |||||||||||||||||
| Total Sales | $ | 4,538,818 | $ | 5,481,101 | $ | 5,252,279 | ||||||||||||||
| Year Ended March 31, | ||||||||||||
| 2020 | 2019 | 2018 | ||||||||||
| Americas | $ | 1,286,527 | $ | 1,190,216 | $ | 1,118,324 | ||||||
| EMEA | 941,211 | 861,731 | 820,347 | |||||||||
| Asia Pacific | 748,113 | 736,375 | 628,192 | |||||||||
| Total Sales | $ | 2,975,851 | $ | 2,788,322 | $ | 2,566,863 | ||||||
Revenues from sales to customers in Switzerland, our homecountry of domicile, represented 4%, 3% and 2% of our sales infor each of fiscal years 2020, 20192023, 2022 and 2018, respectively.2021. In fiscal years 2020, 20192023, 2022 and 2018,2021, revenues from sales to customers in the United States represented 36% 35%, 36% 34% and 37%35% of our sales, respectively. In fiscal years 2020, 20192023, 2022 and 2018,2021, revenues from sales to customers in Germany represented 15%14%, 18%15% and 16% of our sales, respectively. Revenues
Logitech International S.A. | Fiscal 2023 Form 10-K | 6
from sales to customers in China representedrepresented 11% and 10% of our sales for fiscal year 2019.2023 and 2022, respectively. No other country represented more than 10% of our sales for fiscal years 2020, 20192023, 2022 or 2018.2021.
Sales and Distribution
Our sales and marketing activities are organized into three geographic regions: the Americas (North and South America), EMEA (Europe, Middle East, Africa) and Asia Pacific (China, Japan, Australia, Taiwan, India and other countries).
We sell our products primarily to a network of distributors, retailers and e-tailers. We support these channels with our direct sales force and third-party distribution centers located in North America, South America, Europe and Asia Pacific.
Logitech's products can be purchased in mosta number of major retail chains, where we typically have access to significant shelf space. In the U.S., these chains include Best Buy, Walmart, Staples, Office Depot and Target. In Europe, chains include Metro Group (Media-Saturn Group), Elkjop, FNAC, and Dixons Stores Group PLC. Logitech also sells products to non-traditional retail channels such as telcos. In addition, Logitech products can be purchased online either directly or indirectly from Logitech.com or through e-tailers, such as Amazon.com, JD.com and the websites of our major retail chains, noted previously, and others. Logitech products are also carried by business-to-business direct market resellers such as CDW Corp, Insight Enterprise, Inc., Zones, LLC, PC Connection, Inc., and SHI International Corp.resellers.
In fiscal years 2020, 20192023, 2022 and 2018, Ingram Micro and its affiliated entities together accounted for 12%, 13% and 15% of our gross sales, respectively. In fiscal years 2020, 2019 and 2018,2021, Amazon Inc. and its affiliated entities together accounted for 14%19%, 14%17% and 13% of our gross sales, respectively. In fiscal years 2023, 2022 and 2021, Ingram Micro Inc. and its affiliated entities together accounted for 13%, 15% and 14% of our gross sales, respectively. TD Synnex and its affiliate entities together accounted for 15% and 14% of our gross sales for fiscal year 2023 and 2022, respectively. No other customer individually accounted for more than 10% of our gross sales during fiscal years 2020, 20192023, 2022 or 2018.2021.
Customer Service and Technical Support
Our customer service organization provides user technical support, support related to product inquiry, and order support. We support these customer service functions with two outsourced operations that haveas well as inhouse support centersteams located in China, South Korea, India,countries across the world. Outsourced locations include the Philippines, Mexico,the United Kingdom, Japan, Bulgaria and Northern Ireland.China, and inhouse support is primarily located in the United States and India with several other locations in each region. Our customer service and technical personnel in each of our regions provide support services to retail purchasers of products through telephone, e-mail, forums, chat, and the Logitech Support website. For some of our brands, dedicated support websites and dedicated internal support teams and channels are available. To improve our customers' experience and operate efficiently, we use technology to facilitate chatbot interactions, enable self-help and apply Artificial Intelligence to optimize support searches. We also have multiple walk-in centers in Korea and China, managed by third-party providers, where consumers may obtain service for their Logitech products. Consumers who have purchased Logitech products can visit these locations for product inspection, testing and return or exchange of products.
Logitech provides warranties on our branded products that range from one to five years. For our Video Collaboration category, we also work with channel partners to offer bundled support services with Logitech Video Collaboration solutions.
Manufacturing
Logitech's manufacturing operations consist principally of final assembly and testing. Since 1994, we have had our own manufacturing operations in Suzhou, China, which currently handles approximately half40% of our total production of products. We continue to focus on ensuring the efficiency of the Suzhou facilities, through the implementation of quality management, automation, process improvements, and employee involvement programs. We outsource the remaining production to contract manufacturers and original design manufacturers located principally in Asia. Both our in-house and outsourced manufacturing operations are managed by our worldwide operations group. The worldwide operations group also supports the business units and marketing and sales organizations through the management of distribution centers and the supply chain and the provision of technical support and other services.logistics networks.
New product launches, process engineering, commodities management, logistics, quality assurance, operations management and management of Logitech's contract manufacturers occur in China, Taiwan, Hong Kong, Malaysia, VietnamThailand, Mexico, and Thailand.Vietnam. Certain components are manufactured to Logitech's specifications by vendors in Asia, the United States, and Europe. We also use contract manufacturers to supplement internal capacity and to reduce volatility in production volumes. In addition, some products, including most keyboards, certain gaming
Logitech International S.A. | Fiscal 2023 Form 10-K | 7
devices, certain video conferencing devices, and certain audio products are manufactured by contract manufacturers to Logitech's specifications.
Our hybrid model of in-house manufacturing and contract manufacturers allows us to effectively respond to rapidly changing demand and leverage economies of scale. Through our high-volume manufacturing operations located in Suzhou, China, we believe we have been able to maintain strong quality process controls and have realized significant cost efficiencies. Our Suzhou operation provides for increased production capacity, manufacturing know-how, IP protection and greater flexibility in responding to product demand. Further, by outsourcing the manufacturing of certain products, we seek to reduce volatility in production volumes as well as improve time to market.
Competition
Our product categories are characterized by large, well-financed competitors, short product life cycles, continual performance enhancements, and rapid adoption of technological and product advancements by competitors in our retail markets. We have experienced aggressive price competition and other promotional activities from our primary competitors and less-established brands, including brands owned by some retail customers known as house brands. We may also encounter more competition if any of our competitors in one or more categories decide to enter other categories in which we currently operate.
As we target opportunities in new categories and markets and as some of our product categories demonstrate growth, we are confronting new competitors, many of which may have more experience in the categories or markets and have greater marketing resources and brand name recognition than we have. In addition, because of the continuing convergence of the markets for computing devices and consumer electronics, we expect greater competition in the future from well-established consumer electronics companies in our developing categories, as well as future ones we might enter. Many of these companies have greater financial, technical, sales, marketing, and other resources than we have.
We expect continued competitive pressure in our business, including in the terms and conditions that our competitors offer customers, which may be more favorable than our terms and conditions and may require us to take actions to increase our customer incentive programs, which could impact our sales and operating margins.
Creativity and Productivity
Pointing Devices: Apple Inc. ("Apple"), Microsoft Corporation ("Microsoft"), Lenovo Group Ltd (“Lenovo”), Dell Technologies Inc. ("Dell"), and HP Inc. are our main competitors worldwide. We also experience competition and pricing pressure from less-established brands, including house brands and local competitors in Asian markets, such as Elecom Co., Ltd., Buffalo Inc., Shenzhen Rapoo Technology Co., Ltd. (“Shenzhen Rapoo”), and Xiaomi Inc.Corporation.
Keyboards & Combos: Microsoft and Apple are the main competitors in our PC keyboard and combo product lines. We also experience competition and pricing pressure for corded and cordless keyboardkeyboards and combos from less-established brands, including house brands and local competitors in Asian markets, such as Shenzhen Rapoo, IKBC, and Xiaomi.Xiaomi Corporation.
Tablet & Other Accessories: Competitors in the tablet keyboard market are Apple, Zagg Inc., Kensington Computer Products Group, Belkin International, Inc., Targus Corporation and other less-established brands. Although we are one of the leaders in the tablet keyboard market and continue to bring innovative offerings to the market, we expect the competition may increase. Competitors in the tablet case market include Apple, Otter Products LLC, Speck Products and a large number of smallsmaller brands.
Gaming
Competitors for our Gaminggaming products include Razer, Corsair Components,Gaming, Inc., SteelSeries (owned by GN), Turtle Beach Corporation and Kingston Technology Corporation,HyperX (owned by HP Inc.), among others.
Video Collaboration
Our competitors for Video Collaboration products include Cisco Systems, Inc., Poly (owned by HP Inc.), GN Netcom/Jabra and(owned by GN), AVer Information Inc., Neat and Yealink (Xiamen) Network Technology Co.Ltd, among others.
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Music
Mobile Speakers: Our competitors for Bluetooth wireless speakers include Bose Corporation ("Bose"), Harman International Industries, Inc (owned by Samsung Electronics Co., Ltd., Harman owns JBL and has Harman Kardon as a division), and Beats Electronics LLC ("Beats") (owned by Apple), among others. Harman is our largest competitor. Personal voice assistants and other devices that offer music, such as Sonos, Amazon's Echo, Google Home (owned by Alphabet, Inc.) and Apple HomePod, also compete with our products. Amazon is also a significant customer of our products.
Audio & Wearables: For PC speakers, our competitors include Bose, Cyber Acoustics LLC, Philips Consumer Lifestyle (a division of Royal Philips),and Creative Labs, Inc., Apple and Samsung, among others.
For PC headsets, our main competitors include Poly (formerly Plantronics(owned by HP Inc.) and GN Netcom,Jabra (owned by GN), among others. In-ear headphones competitors include Beats, Bose, Apple, Sony Corporation ("Sony"), JBL and Sennheiser, among others. The platform providers (e.g., Apple and Samsung) are able to craft tighter experiences for their consumers due to their ability to control both ends of the ecosystem (the headphone and the mobile device).
Our competitors for Blue Microphones products include Rode Microphones LLC, Audio Technica Corporation, Samson Technologies Corp., Shure Incorporated, Razer Inc. and Apogee Electronics Corp., among others.
Intellectual Property and Proprietary Rights
Intellectual property rights that apply to Logitech's products and services include patents, trademarks, copyrights, and trade secrets.
We hold various United States patents and pending applications, together with corresponding patents and pending applications from other countries. While we believe that patent protection is important, we also believe that patents are of less competitive significance than factors such as technological innovation, ease of use, and quality design. No single patent is in itself essential to Logitech as a whole. From time to time, we receive claims that we may be infringing on patents or other intellectual property rights of others. As appropriate, claims are referred to legal counsel, and current claims are in various stages of evaluation and negotiation. If necessary or desirable, we may seek licenses for certain intellectual property rights. Refer also to the discussion in Item 1A Risk"Risk Factors—"We
may be unable to protect our proprietary rights. Unauthorized use of our technology may result in the development of products that compete with our products." and "Claims by others that we infringe their proprietary technology could adversely affect our business."
To distinguish genuine Logitech products from competing products and counterfeit products, Logitech has used, registered, or applied to register certain trademarks and trade names in the United States and other countries and jurisdictions. Logitech enforces its trademark and trade name rights in the United States and other countries. In addition, the software for Logitech's products and services is entitled to copyright protection, and we generally require our customers to obtain a software license before providing them with that software. We also protect details about our products and services as trade secrets through employee training, license and non-disclosure agreements, technical measures and other reasonable efforts to preserve confidentiality.
Material Government Regulations
We conduct operations in a number of countries and we are subject to a variety of laws and regulations which vary from country to country. Such laws and regulations include, in addition to environmental regulations described below, tax, import/export and anti-corruption laws, varying accounting, auditing and financial reporting standards, import or export restrictions or licensing requirements, trade protection measures, custom duties, tariffs, import or export duties, and other trade barriers, restrictions and regulations.
While we incur increasing costs to comply with such other government regulations, we do not believe that our compliance with such requirements will have a material effect on our capital expenditures, competitive position, consolidated results of operations, earnings, or cash flows. Nonetheless, as discussed below, we believe that certain environmental, social and governance ("ESG") regulations could potentially materially impact our business.
For more information about such regulations and how they may impact us, see "Risks Related to our Global Operations and Regulatory Environment" and “We are subject to risks related to our environmental, social and governance ("ESG") activities and disclosures” in Item 1A "Risk Factors" and Note 7—Income Taxes in our Notes to consolidated financial statements below.
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Environmental Regulation
We are subject to laws andenvironmental regulations in manya number of jurisdictions, regulatingincluding the materials used in our products and, increasingly, product-related energy consumption, and the recycling of our products, batteries, and packaging.following regulations:
Our products are subject to various federal, state, local and foreign laws governing chemical substances in products and their safe use, including laws regulating the manufacture and distribution of chemical substances and laws restricting the presence of certain hazardous materials, including lead, mercury, cadmium, chromium, phthalates and halogenated flame-retardants. Allsubstances in electronics products.
Stewardship: In Europe, Logitech products are coveredregulated by the directive and have been modified, if necessary, to be compliant with the RoHS Directive, we issue a declaration of conformity and mark the product with the 'CE' mark.
Conflict Minerals: Sourcing of certain metals is regulated under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, specifically Section 1502, which addresses the use of "Conflict Minerals" in the supply chain. Similar legislation is emerging in other countries worldwide. We have established systems which facilitate our compliance with the sourcing, traceability and reporting obligations and the reporting requirements of this Act aligned with guidelines published by the Securities and Exchange Commission. As a member of the Responsible Business Alliance (“RBA”) and the Responsible Minerals Initiative ("RMI"), we participate in the industry-wide Conflict-Free Sourcing Initiative and its Responsible Minerals Assessment Program (“RMAP”). The RMAP standards are considered industry best practice and are developed to meet the requirements of the OECD Due Diligence Guidance, the Regulation ("EU") 2017/821 of the European Parliament and the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act.
Modern Slavery: Our commitment to combat slavery and human trafficking is underpinned by the Transparency in Supply Chain Act of 2010 (S.B. 657), the United Kingdom Modern Slavery Act of 2015, the California Transparency in Supply Chains Act of 2010, the Australian Modern Slavery Act of 2018 and existing or emerging similar legislation worldwide. We utilize our formalized commitment to the United Nations Global Compact ("UNGC") adherence to the RBA code of conduct and transparently report our programs to identify and eradicate slavery and human trafficking in our global supply chains.
Climate & Carbon: Our operations, supply chain and products are not currently subject to carbon pricing or other legally required carbon taxation or penalties. We have made a voluntary adherence to the Paris Accord international agreement for climate action and we have developed and adopted the principle of Design for Sustainability ("DfS") and Carbon Transparency to catalyze reductions in our corporate carbon footprint, uptake of renewable power and materials and our journey to net zero. With our annual Sustainability Report and Carbon Disclosure Project reports, we report progress, risks and opportunities around climate and carbon.
Our operations, supply chain and our products are expected to become increasingly subject to federal, state, local and foreign laws, regulations and international treaties relating to climate change, such as climate disclosure, carbon pricing or product energy efficiency requirements, requiring us to comply or potentially face market access limitations or other sanctions including fines. We strive to continually improve the energy and carbon efficiency of our operations, supply chain and product portfolio through our DfS deployment during product development. We are committed to carbon transparency through product carbon footprint labeling and ensuring that the consumer is engaged and aware of the impact of their purchase. We believe that this consumer centric approach is fundamental in moving towards a more sustainable future and we are collaborating with industry and business groups to find and promote ways to achieve broader adoption of this approach.
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Energy: A number of our products are subject to various federal, state, local and foreign laws governing energy management or encouraging manufacturers and importers to produce products designed to minimize overall environmental impact.
The effects on Logitech's business of complying with these environmental regulations currently are limited to the cost of agency fees and testing required to obtain agency approvals. The costs and schedule requirements are industry requirements and therefore do not represent an undue burden relative to Logitech's competitive position. As regulations change, we will modify our products or processes to address those changes.
Seasonality
Our product sales are typically seasonal. Sales are generally highest during our third fiscal quarter (October to December) primarily due to the increased consumer demand for our products during the year-end holiday buying season and year-end spending by enterprises. Cash flow is correspondingly lower in the first half of our fiscal year as we typically build inventories in advance for the third quarter and we pay an annual dividend following our Annual General Meeting, which is typically in September. Due to the timing of our new product introductions, which could occur at any point during the fiscal year, we believe that year-over-year comparisons are more indicative of variability in our results of operations than the current quarter to prior quarter comparisons.
Materials
We purchase certain products and key components used in our products from a limited number of sources. If the supply of these products or key components, such as micro-controllers and optical sensors, were to be delayed or constrained, or if one or more of our single-source suppliers go out of business, we might be unable to find a new supplier on acceptable terms, or at all, and our shipments to our customers could be delayed, potentially resulting in lost revenue, market presence and market share. In addition, leadLead times for materials, components, and products ordered by us or by our contract manufacturers can vary significantly and depend on factors such as contract terms, demand for a component, our ability to forecast product demand, and supplier capacity. From time to time, we have experienced component shortages and extended lead times on semiconductors, such as micro-controllers and optical sensors, and base metals used in our products. Shortages or interruptions in the supply of components or subcontracted products, or our inability to procure these components or products from alternate sources at acceptable prices in a timely manner, could delay shipment of our products or increase our production costs.
Human Capital Resources
Employees
Our human capital resources include persons employed directly by us or indirectly through contingent workforce arrangements. As of March 31, 2020,2023, we employed approximately 6,600 regular employees,7,400 persons, of which approximately 3,000 employees are2,400 were employed, directly and indirectly, in our Suzhou manufacturing facilities, and from the remaining 3,600 regular employees, approximately 800 are dedicated to research and development.operations. None of Logitech's U.S. direct employees are represented by a labor union or are subject to a collective bargaining agreement. Certain other countries, such as China, provide by law for employee rights, which include requirements similar to collective bargaining agreements. We believe that our employee relations are good.
Diversity and Inclusion
We believe that reflecting the diverse world in which we live - through our people and by fostering an inclusive culture - provides us with the foundation needed to create experiences that enable all people to pursue their passions, which is our corporate purpose. Our direct employees are located across Americas, EMEA and Asia-Pacific and bring a range of perspectives and skills to Logitech. As of March 31, 2023, 46% of our office employees were located in Asia-Pacific, 30% in the Americas, and 24% in EMEA. As of March 31, 2023, females represented 38% of our global office employees, 36% of our manufacturing workforce, and 34% were in managerial roles. In the U.S., underrepresented minorities (defined as Black or African American, Asian, Hispanic or Latino, American Indian or Alaska Native, and Native Hawaiian or Other Pacific Islander) represented 47% of our workforce, and 44% were in managerial roles.
To foster a more inclusive environment, we offer training sessions to emphasize awareness of self, bias and privilege, and inclusion. In addition, to measure our employees’ satisfaction at Logitech, we distribute a bi-annual employee engagement survey. Most recently, we conducted a survey in December 2022, in which 85% of our global office employees participated. As part of the Registrantsurvey, employees provided weighted feedback on their experience at Logitech, on measures such as happiness, retention and their perspective on our current state of workplace inclusivity at Logitech.
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Safety, Health and Well-being
We look to safeguard the safety, health and well-being of all members of the Logitech team. We implement training and communication programs across the business each year to ensure employee awareness of the importance of health and safety management and our key programs and provisions. To help us ensure the safety, health and well-being of employees at our production facility in Suzhou, China, we follow the RBA Code of Conduct and have an Environmental, Health and Safety ("EHS") Management System that is certified to ISO 14001 and ISO 45001. We implement the RBA Code as a full supply chain initiative. Further, we operate an audit and verification program to verify compliance with the RBA code. We believe health and well-being are critical to our employee’s personal and professional success and provide, in addition to healthcare benefits, wellness tools, resources and programs designed to help employees achieve good physical, financial, emotional, intellectual and social well-being.
Talent Acquisition and Development
Our geographic diversity gives Logitech an excellent foundation to recruit diverse talent from around the world. We believe that the entire talent process must be executed through a lens of equity and inclusion. We provide learning and development tools and resources to all our employees through our key programs. Our talent development program includes a dedicated training center at our production facility, a number of workshop-based, leadership development, mentorship, coaching career development and team building programs that remain available remotely.
Information About Our Executive Officers. The following sets forth certain information regarding our executive officers as of May 27, 2020: *
17, 2023:
| Name | Age | Nationality | Position | |||||||||||||||||
| Bracken Darrell | U.S. | President, | ||||||||||||||||||
| U.S. | Chief Financial Officer | |||||||||||||||||||
| Prakash | U.S. | |||||||||||||||||||
| Samantha Harnett | 47 | U.S. | Chief Legal Officer and Corporate Secretary | |||||||||||||||||
Bracken Darrell joined Logitech as President in April 2012 and became Chief Executive Officer in January 2013. Prior to joining Logitech, Mr. Darrell served as President of Whirlpool EMEA and Executive Vice President of Whirlpool Corporation, a home appliance manufacturer and marketing company, from January 2009 to March 2012. Previously, Mr. Darrell had been Senior Vice President, Operations of Whirlpool EMEA from May 2008 to January 2009. From 2002 to May 2008, Mr. Darrell was with the Procter & Gamble Company (P&G)("P&G"), a consumer brand company, most recently as the President of its Braun GmbH subsidiary. Prior to rejoining P&G in 2002, Mr. Darrell served in various executive and managerial positions with General Electric Company from 1997 to 2002, with P&G from 1991 to 1997, and with PepsiCo Inc. from 1987 to 1989. Mr. Darrell holds a BA degree from Hendrix College and an MBA from Harvard University.
Prakash Arunkundrum is Logitech’s Head of Global Operations,Chief Operating Officer, a position he has held since February 2023. He was previously Logitech's Head of Global Operations & Sustainability, a role he held from May 2018. He joined Logitech in 2015 and held operations positions as Vice President New Product Introductions & Strategic Initiatives from August 2015 to July 2016 and Vice President Global Sourcing and New Product Introductions from July 2016 to May 2018. Prior to joining Logitech, Mr. Arunkundrum was a Principal at A.T. Kearney, a global management
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Samantha Harnett joined Logitech as General Counsel in June 2020 and became Chief Legal Officer in April 2023. Prior to joining Logitech, Ms. Harnett served in various legal and management roles at Eventbrite, Inc., a global self-service ticketing and experience technology platform, most recently as Chief Legal and Operations Officer from October 2019 to June 2020. While at Eventbrite, she also served as Senior Vice President, General Counsel from May 2018 to October 2019 and Vice President, General Counsel from November 2015 to May 2018. From March 2005 to November 2015, Ms. Harnett served in various positions at ZipRealty, Inc., a real estate technology and online brokerage company, including most recently as General Counsel and Senior Vice President of Business Development from October 2009 to November 2015. She also served as an associate at Wilson Sonsini Goodrich and Rosati, P.C. Ms. Harnett holds a BA degree from California State University, Chico and a JD from Santa Clara University School of Law.
Available Information
Our Investor Relations website is located at https://ir.logitech.com. We post and maintain an archive of our earnings and other press releases, current reports, annual and quarterly reports, earnings release schedule, information regarding annual general meetings, further information on corporate governance, and other information regarding the Company on the Investor Relations website. The information we post includes filings we make with the SEC, including reports on Forms 10-K, 10-Q, 8-K, and our proxy statement related to our annual shareholders' meeting and any amendments to those reports or statements filed or furnished pursuant to U.S. securities laws or Swiss laws. All such filings and information are available free of charge on the website, and we make them available on the website as soon as reasonably possible after we file or furnish them with the SEC. The contents of these websites are not intended to be incorporated by reference into this report or in any other report or document we file and our references to these websites are intended to be inactive textual references only.
In addition, Logitech publishes press releases upon the occurrence of significant events within Logitech. Shareholders and members of the public may elect to receive e-mailsalerts when Logitech issues press releases upon the occurrence of significant events within Logitech or other press releases by subscribing through
http://ir.logitech.com/alerts.cfm.
As a Swiss company traded on the SIX Swiss Exchange, and as a company subject to the provisions of Section 16 of the Securities Exchange Act of 1934, as amended, we file reports on transactions in Logitech securities by members of Logitech's Board of Directors and executive officers. The reports that we file with the Securities and Exchange Commission on Forms 3, 4 and 5, along with our other SEC filings, may be accessed on our website or on the Securities and Exchange Commission's website at http://www.sec.gov, and the reports we file that are published by the SIX Swiss Exchange may be accessed at
http://www.six-exchange-regulation.com/obligations/management_transactions_en.html.
ITEM 1A. RISK FACTORS
The risk factors summarized and disclosed below could adversely affect our business, results of operations and financial condition, and may cause volatility in the price of our shares. These are not all the risks we face and other factors not presently known to us or that we currently believe are immaterial may also affect our business if they occur. See also the other information set forth in this Annual Report on Form 10-K, including in Part I, Item 1 "Business," Part II, Item 7 "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and our Consolidated Financial Statements and the related Notes.
Summary of Risk Factors
Risks Related to our Business
•If we fail to innovate and develop new products in a timely and cost-effective manner for our new and existing product categories, our business and operating results could be adversely affected.
•If we do not successfully execute on our growth opportunities, or if our growth opportunities are more limited than we expect, our operating results and future growth could be adversely affected.
•We purchase key components and products from a limited number of sources, and our business and operating results could be adversely affected if supply were delayed or constrained or if there were shortages of required components.
•Our principal manufacturing operations and third-party contract manufacturers are located in China and Southeast Asia, which exposes us to risks associated with doing business in that geographic area as well as potential tariffs, adverse trade regulations, adverse tax consequences and pressure to move or diversify our manufacturing locations.
•If we do not successfully coordinate the worldwide manufacturing and distribution of our products, we could lose sales and our business and operating results could be adversely affected.
•If we are not able to maintain and enhance our brands, or if our brands or reputation are damaged, our reputation, business and operating results could be adversely affected.
•If we do not compete effectively, demand for our products could decline and our business and operating results could be adversely affected.
•We rely on third parties to sell and distribute our products, and we rely on their information to manage our business. Disruption of our relationship with these channel partners, changes in or issues with their business practices, their failure to provide timely and accurate information, changes in distribution partners, practices or models, conflicts among our channels of distribution, or failure to build and scale our own sales force for certain product categories and enterprise channel partners could adversely affect our business, results of operations, operating cash flows and financial condition.
•If we do not accurately forecast market demand for our products, our business and operating results could be adversely affected.
•Our business depends in part on access to third-party platforms or technologies, and if access thereto is withdrawn, denied, or is not available on terms acceptable to us, or if the platforms or technologies change without notice to us, our business and operating results could be adversely affected.
•Our success largely depends on our ability to manage, hire, retain, integrate and motivate sufficient numbers of qualified personnel, including senior leadership. Our strategy and our ability to innovate, design
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and produce new products, sell products, maintain operating margins and control expenses depend on key personnel that may be difficult to replace.
•As we focus on growth opportunities, we are divesting or discontinuing non-strategic product categories, or pursuing strategic acquisitions and investments, which could have an adverse impact on our business.
•As we continue our efforts to lower our costs and improve our operational efficiency, we may not fully realize our goals.
•Product quality issues could adversely affect our reputation, business and operating results.
Risks Related to Global Nature of our Operations and Regulatory Environment
•Adverse global and regional economic and geopolitical conditions can materially adversely affect our business, results of operations and financial condition.
•We conduct operations in a number of countries and have invested significantly in growing our sales and marketing activities in China, and the effect of business, legal and political risks associated with international operations could adversely affect us.
•Changes in trade policy and regulations in the United States and other countries, including changes in trade agreements and the imposition of tariffs and the resulting consequences, may have adverse impacts on our business, results of operations and financial condition.
•Our financial performance is subject to risks associated with fluctuations in currency exchange rates.
•We are subject to risks related to our environmental, social and governance ("ESG") activities and disclosures.
•As a company operating in many markets and jurisdictions, expanding into new growth categories, and engaging in acquisitions, and as a Swiss, dual-listed company, we are subject to risks associated with new, existing and potential future laws and regulations.
•As a result of changes in tax laws, treaties, rulings, regulations or agreements, or their interpretation, of Switzerland or any other country in which we operate, the loss of a major tax dispute or a successful challenge to our operating structure, intercompany pricing policies or the taxable presence of our key subsidiaries in certain countries, or other factors, our effective income tax rates may increase, which could adversely affect our net income and cash flows.
•We maintain cash and cash equivalents at financial institutions and are exposed to credit risk in the event of default by such financial institutions.
Risks Related to Confidential Information, Cybersecurity, Privacy, and Intellectual Property
•Losses or unauthorized access to or releases of confidential information could adversely affect our business and result in significant reputational, financial and legal consequences.
•The collection, storage, transmission, use and distribution of personal data could give rise to liabilities and additional costs of operation as a result of laws, governmental regulation and risks of data breaches and security incidents.
•Claims by others that we infringe their proprietary technology could adversely affect our business.
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•We may be unable to protect our proprietary rights. Unauthorized use of our technology may result in the development of products that compete with our products.
Risks Related to our Financial Results
•Our operating results are difficult to predict and fluctuations in results may cause volatility in the price of our shares.
•Our revenues and profitability are difficult to predict due togross margins can vary significantly depending on multiple factors, which can result in unanticipated fluctuations in our operating results.
•We cannot ensure that our share repurchase programs will be fully utilized or that it will enhance long-term shareholder value. Share repurchases may also increase the naturevolatility of the markets in which we compete, fluctuating user demand, the uncertainty of current and future global economic conditions, and for many other reasons, including the following:
Risk Factors
Risks Related to our Business
If we fail to innovate and develop new products in a timely and cost-effective manner for our new and existing product categories, our business and operating results could be adversely affected.
Our product categories are characterized by short product life cycles, intense competition, frequent new product introductions, rapidly changing technology, dynamic consumer demand and evolving industry standards. As a result, we must continually innovate in our new and existing product categories, introduce new products and technologies, and enhance existing products in order to remain competitive.
The success of our product portfolio depends on several factors, including our ability to:
•Identify new features, functionality and opportunities;
•Anticipate technology, market trends and consumer preferences;
•Develop innovative, high-quality, and reliable new products and enhancements in a cost-effective and timely manner;
•Distinguish our products from those of our competitors; and
•Offer our products at prices and on terms that are attractive to our customers and consumers.
The development of new products and services can be very difficult and requires high levels of innovation. The development process also can be lengthy and costly. There are significant initial expenditures for research and development, tooling, manufacturing processes, inventory and marketing, and we may not be able to recover those investments. If we fail to accurately anticipate technological trends or our users’ needs or preferences, are unable to complete the development of products and services in a cost-effective and timely fashion or are unable to appropriately increase production to fulfill customer demand, we will be unable to successfully introduce new products and services into the market or compete with other providers. Even if we complete the development of our new products and services in a cost-effective and timely manner, they may not be competitive with products developed by others, they may not achieve acceptance in the market at anticipated levels or at all, they may not be profitable or, even if they are profitable, they may not achieve margins as high as our expectations or as high as the margins we have achieved historically.
As we introduce new or enhanced products, integrate new technology into new or existing products, or reduce the overall number of products offered, we face risks including, among other things, disruption in customers’ ordering patterns, excessive levels of new and existing product inventories, revenue deterioration in our existing product lines, insufficient supplies of new products to meet customers’ demand, possible product and technology defects, and a potentially different sales and support environment. Premature announcements or leaks of new products, features or technologies may exacerbate some of these risks by reducing the effectiveness of our product launches, reducing sales volumes of current products due to anticipated future products, making it more difficult to
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compete, shortening the period of differentiation based on our product innovation, straining relationships with our partners or increasing market expectations for the results of our new products before we have had an opportunity to demonstrate the market viability of the products. Our failure to manage the transition to new products and services or the integration of new technology into new or existing products and services could adversely affect our business, results of operations, operating cash flows and financial condition.
Our sales of PC peripherals might be less than we expect due to a decline in business or economic conditions in one or more of the countries or regions, a greater decline than we expect in demand for our products, our inability to successfully execute our salesfuture growth depends on growth opportunities and marketing plans, or for other reasons. Global economic concerns, such as the COVID-19 pandemic, the varying pace of global economic recovery, political uncertainties created by policy changes such as Brexit, tariffs and policies that inhibit trade, the impact of sovereign debt issues in Europe, the
limited resources do not emerge as the opportunities or do not produce the growth or profitability we expect, or when we expect it, or if we do not correctly anticipate changes and evolutions in technology and platforms, our business and results of operations could be adversely affected.
In addition, we rely on our go-to-market capability to leverage on those growth opportunities, market our products and compete effectively with a goal of strengthening our sales. If we are not able to develop and maintain our go-to-market capabilities and processes, in particular the continued development of our enterprise salesforce and strategy, our business and results of operations could be adversely affected.
We purchase key components and products from a limited number of sources, and our business and operating results could be adversely affected if supply were delayed or constrained or if there were shortages of required components.
We purchase certain products and key components from a limited number of sources. If the supply of these products or key components were to be delayed or constrained, impacted by global shortages of semiconductor chips, or if one or more of our single-source suppliers experience disruptions or go out of business as a result of adverse global economic conditions, natural disasters or regional or global pandemics, including COVID-19, we might be unable to find a new supplier on acceptable terms, or at all, and our product shipments to our customers could be delayed, which could adversely affect our business, financial condition and operating results.
Lead times for materials, components and products ordered by us or by our contract manufacturers can vary significantly and depend on factors such as contract terms, demand for a component, and supplier capacity. From time to time, we have experienced component shortages and extended lead times on semiconductors, such as microcontrollers and optical sensors, and base metals used in our products. Shortages or interruptions in the supply of components or subcontracted products, or our inability to procure these components or products from alternate sources at acceptable prices in a timely manner, could delay shipment of our products or increase our production costs, which could adversely affect our business and operating results.
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Our principal manufacturing operations and third-party contract manufacturers are located in China and Southeast Asia, which exposes us to risks associated with doing business in that geographic area as well as potential tariffs, adverse trade regulations, adverse tax consequences and pressure to move or diversify our manufacturing locations.
We produce approximately 40% of our products at the facilities we own in China. The majority of our other production is performed by third-party contract manufacturers, including original design manufacturers, in China, Taiwan, Hong Kong, Malaysia, Thailand, Mexico, and Vietnam.
Our manufacturing operations in China have been in the past and could in the future be adversely affected by the COVID-19 pandemic, changes in the interpretation and enforcement of legal standards, strains on China’s available labor pool, changes in labor costs and other employment dynamics, high turnover among Chinese employees, infrastructure issues, import-export issues, cross-border intellectual property and technology restrictions, currency transfer restrictions, natural disasters, regional or global pandemics, conflicts or disagreements between China and Taiwan or China and the United States, labor unrest, and other trade customs and practices that are dissimilar to those in the United States and Europe. Interpretation and enforcement of China’s laws and regulations continue to evolve, and we expect differences in interpretation and enforcement to continue in the foreseeable future.
Our manufacturing operations at third-party contractors could be adversely affected by contractual disagreements, by labor unrest, by natural disasters, by regional or global pandemics, such as the COVID-19 pandemic, by wars and armed conflicts, by strains on local communications, trade, and other infrastructures, by competition for the available labor pool or manufacturing capacity, by increasing labor and other costs, and by other trade customs and practices that are dissimilar to those in the United States and Europe.
Further, we have been exposed in the past and may be exposed to fluctuations in the value of the local currency in the countries in which manufacturing occurs. Future appreciation of these local currencies could increase our component and other raw material costs. In addition, our labor costs could continue to rise as wage rates increase and the available labor pool declines. These conditions could adversely affect our financial results.
If we do not successfully coordinate the worldwide manufacturing and distribution of our products, we could lose sales and our business and operating results could be adversely affected.
If we do not successfully coordinate the timely manufacturing and distribution of our products, if our manufacturers, distribution logistics providers or transport providers are not able to successfully and timely process our business or if we do not receive timely and accurate information from such providers, and especially if we expand into new product categories or our business grows in volume, we may have an insufficient supply of products to meet customer demand or experience a build-up in inventory. As a result, we could lose sales or incur additional costs which could adversely affect our financial performance.
By locating our manufacturing in China and Southeast Asia, we are reliant on third parties to get our products to distributors around the world. Transportation costs, fuel costs, labor unrest, natural disasters, regional or global pandemics, military conflicts, and other adverse effects on our ability, timing and cost of delivering products can increase our inventory, decrease our margins, adversely affect our relationships with distributors and other customers and otherwise adversely affect our results of operations and financial condition.
A significant portion of our quarterly retail orders and product deliveries generally occur in the last weeks of the fiscal quarter. This places pressure on our supply chain and could adversely affect our revenues and profitability if we are unable to successfully fulfill customer orders.
If we are not able to maintain and enhance our brands, or if our brands or reputation are damaged, our reputation, business and operating results could be adversely affected.
We have developed long-term value in our brands and have invested significantly in design and in our existing and new brands over the past several years. We believe that our design and brands have significantly contributed to the success of our business and that maintaining and enhancing our brands is very important to our future growth and success. Maintaining and enhancing our brands will require significant investments and will depend largely on our future design, products and marketing, which may not be successful and may damage our brands. Our brands and reputation are also dependent on third parties, such as suppliers, manufacturers, distributors, retailers, product
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reviewers and the media as well as online consumer product reviews, consumer recommendations and referrals. It can take significant time, resources and expense to overcome negative publicity, reviews or perception. Any negative effect on our brands, regardless of whether it is in our control, could adversely affect our reputation, business and results of operations.
If we do not compete effectively, demand for our products could decline and our business and operating results could be adversely affected.
The peripherals industry in which we operate is intensely competitive. Most of our product categories are characterized by large, well-financed competitors with strong brand names and highly effective research and development, marketing and sales capabilities, short product life cycles, continual performance enhancements, and rapid adoption of technological and product advancements by competitors in our retailproduct markets. Many of our competitors have broad product portfolios across several of our product categories and are able to use the strength of their brands to move into adjacent categories. Our competitors have the ability to bring new products to market quickly and at competitive prices. We also experience aggressive price competition and other promotional activities from our primary competitors and from less-established brands, including brands owned by retail customers known as house brands. As we shift the focus of our marketing efforts in certain categories from a push model to a demand-generating pull model, the pressures from this competition and from our distribution channels, combined with the implementation risks of such a strategy shift, could adversely affect our competitive position, market share and business. In addition, our competitors may offer customers terms and conditions that may be more favorable than our terms and conditions and may require us to take actions to maintain or increase our customer incentive programs, which could impact our revenues and operating margins.
Microsoft, Apple, Google and Amazon are leading producers of operating systems, hardware, platforms and applications with which our mice, keyboards, wireless speakers and other products are designed to operate. In addition, Microsoft, Apple, Google and Amazon each has significantly greater financial, technical, sales, marketing and other resources than Logitech, as well as greater name recognition and a larger customer base. As a result, Microsoft, Apple, Google and Amazon each may be able to improve the functionality of its products, if any, or may choose to show preference to our competitors' products, to correspond with ongoing enhancements to its operating systems, hardware and software applications before we are able to make such improvements. This ability could provide Microsoft, Apple, Google, Amazon or other competitors with significant lead-time advantages. In addition, Microsoft, Apple, Google, Amazon or other competitors may be able to control distribution channels or offer pricing advantages on bundled hardware and software products that we may not be able to offer, and maybe financially positioned to exert significant downward pressure on product prices and upward pressure on promotional incentives in order to gain market share.
We rely on third parties to sell and distribute our products, and we rely on their information to manage our business. Disruption of our relationship with these channel partners, changes in or issues with their business practices, their failure to provide timely and accurate information, changes in distribution partners, practices or models, conflicts among our channels of distribution, or failure to build and scale our own sales force for certain product categories and enterprise channel partners could adversely affect our business, results of operations, operating cash flows and financial condition.
We primarily sell our products to a network of distributors, retailers, e-tailers and e-tailersenterprise customers (together with our direct sales channel partners). We are dependent on those direct sales channel partners to distribute and sell our products to indirect sales channel partners and ultimately to consumers. The sales and business practices of all such sales channel partners, their compliance with laws and regulations, and their reputations - of which we may or may not be aware - may affect our business and our reputation.
While our overall distribution relationships are diffuse, over a quarter ofin fiscal year 2023 and 2022 our gross sales arewere concentrated with twothree customers - Amazon Inc., Ingram Micro and Ingram MicroTD Synnex - and their affiliated entities.We do not have long-term commitments with those customers. If online sales grow as a percentage of overall sales, we expect that we will become even more reliant on Amazon. While we believe that we have good relationships with Amazon, and Ingram Micro and TD Synnex, any adverse change in either of those relationships could have an adverse impact on our results of operations and financial condition.
The impact of economic conditions, labor issues, natural disasters, regional or global pandemics, evolving consumer preferences, and purchasing patterns on our distribution partners, or competition between our sales channels, could result in sales channel disruption. For example, if sales at large retail stores are displaced as a result of bankruptcy, competition from Internet sales channels or otherwise, our product sales could be adversely affected and our product mix could change, which could adversely affect our operating costs and gross margins. The closure of brick-and-mortar stores around the world during the COVID-19 pandemic has exacerbated an already declining Bluetooth speaker market. COVID-19 has also underscored the risk of disruption in our sales channel at distribution partners such as Amazon. Any loss of a major partner or distribution channel or other
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channel disruption could make us more dependent on alternate channels, increase pricing and promotional pressures from other partners and distribution channels, increase our marketing costs, or adversely impact buying and inventory patterns, payment terms or other contractual terms, sell-through or delivery of our products to consumers, our reputation and brand equity, or our market share.
Our sales channel partners also sell products offered by our competitors and, in the case of retailer house brands, may also be our competitors. If product competitors offer our sales channel partners more favorable terms, have more products available to meet their needs, or utilize the leverage of broader product lines sold through the channel, or if our sales channel partners show preference for their own house brands, our sales channel partners may de-emphasize or decline to carry our products. In addition, certain of our sales channel partners could decide to de-emphasize the product categories that we offer in exchange for other product categories that they believe provide them with higher returns. If we are unable to maintain successful relationships with these sales channel partners or to maintain our distribution channels, our business will suffer.
As we expand into new product categories and markets in pursuit of growth, we will have to build relationships with new channel partners and adapt to new distribution and marketing models. These new partners, practices and models may require significant management attention and operational resources and may affect our accounting, including revenue recognition, gross margins, and the ability to make comparisons from period to period. Entrenched and more experienced competitors will make these transitions difficult. Certain product categories, such
as Video Collaboration, may also require that we further build and scale our own enterprise sales force. Several of our competitors already have large enterprise salesales forces and experience and success with that sales model. If we are unable to build successful distribution channels, build and scale our own enterprise sales force, or successfully market our products in these new product categories, we may not be able to take advantage of the growth opportunities, and our business and our ability to grow our business could be adversely affected.
We reserve for cooperative marketing arrangements, incentive programs and pricing programs with our sales channel partners. These reserves are based on judgments and estimates, using historical experience rates, inventory levels in distribution, current trends and other factors. There could be significant differences between the actual costs of such arrangements and programs and our estimates.
We use sell-through data, which represents sales of our products by our direct retailer and e-tailer customers to consumers, and by our distributor customers to their customers, along with other metrics, to assess consumer demand for our products. Sell-through data is subject to limitations due to collection methods and the third-party nature of the data and thus may not be an accurate indicator of actual consumer demand for our products. In addition, theThe customers supplying sell-through data vary by geographic region and from period to period, but typically represent a majority of our retail sales. In addition, we rely on channel inventory data from our sales channel partners. If we do not receive this information on a timely and accurate basis, if this information is not accurate, or if we do not properly interpret this information, our results of operations and financial condition may be adversely affected.
If we do not successfully coordinate the worldwide manufacturing and distribution ofaccurately forecast market demand for our products, we could lose sales.
We use our forecasts of product demand to make decisions regarding investments of our resources and production levels of our products. Although we receive forecasts from our customers, many are not obligated to purchase certainthe forecasted demand. Also, actual sales volumes for individual products in our retail distribution channel can be volatile due to changes in consumer preferences and key components fromother reasons. In addition, our products have short product life cycles, so a limitedfailure to accurately predict high demand for a product can result in lost sales that we may not recover in subsequent periods, or higher product costs if we meet demand by paying higher costs for materials, production and delivery. Our failure to predict low demand for a product can result in excess inventory, lower cash flows and lower margins if we are required to reduce product prices in order to reduce inventories.
If our sales channel partners have excess inventory of our products or decide to decrease their inventories for any reason, they may decrease the number of sources. If the supply of these products or key components, such as micro-controllers and optical sensors, were to be delayed or constrained, or if one or more of our single-source suppliers experience disruptions or go out of business as a result of adverse global economic conditions, natural disasters or regional or global pandemics, we might be unable to find a new supplier on acceptable terms, or at all, and our product shipments to our customers could be delayed,they acquire in subsequent periods, which could cause disruption in our business and adversely affect our forecasts and sales.
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In addition, market demand remains less predictable and more volatile than pre-COVID-19, partially due to the current macroeconomic and geopolitical conditions. As a result, we have experienced in the past and may continue experiencing large differences between our forecasts and actual demand for our products that may result in excess inventory or product unavailability, inventory and restructuring reserves, increases in operational logistics and other costs, damaged relationships with suppliers or customers, opportunities for our competitors, and lost market share and revenue. If we do not accurately predict product demand, our business financial condition and operating results.results could be adversely affected.
Our business depends in part on access to third-party platforms or technologies, and if access thereto is withdrawn, denied, or is not available on terms acceptable to us, or if the platforms or technologies change without notice to us, our business and operating results could be adversely affected.
Our access to third-party platforms may require paying a royalty, which lowers our product margins or may otherwise be on terms that are not acceptable to us. In addition, the third-party platforms or technologies used to interact with our product portfolio can be delayed in production or can change without prior notice to us, which can result in our having excess inventory, lower margins, lost investment in time and expense, or lost opportunity cost.
If we are unable to access third-party platforms or technologies, or if our access is withdrawn, denied, or is not available on terms acceptable to us, or byif the platforms or technologies are delayed or changed without notice to us, our contract manufacturers can vary significantlybusiness and operating results could be adversely affected.
Our success largely depends on our ability to manage, hire, retain, integrate and motivate sufficient numbers of qualified personnel, including senior leadership. Our strategy and our ability to innovate, design and produce new products, sell products, maintain operating margins and control expenses depend on factors such as contract terms, demand for a component,key personnel that may be difficult to replace.
Our success depends on our ability to attract and supplier capacity.retain highly skilled personnel, including senior leadership and international personnel. From time to time, we experience turnover in some of our senior leadership positions.
We compensate our employees through a combination of salary, bonuses, benefits and equity compensation. Recruiting and retaining skilled personnel, including software and hardware engineers, is highly competitive. If we fail to provide an attractive working environment and competitive compensation to our employees, it will be difficult to retain, hire and integrate qualified employees and contractors, and we may not be able to maintain and expand our business. If we do not retain or maintain the continuity of our senior leaders or other key employees for any reason, including voluntary or involuntary departure, death or permanent or temporary disability, we risk losing institutional knowledge, experience, expertise and other benefits of continuity as well as the ability to attract and retain other key employees. In addition, we must carefully balance the size of our employee base with our current infrastructure, management resources and anticipated operating cash flows. If we are unable to manage the size of our employee base, including but not limited to our engineers, product managers and designers and other functions, we may fail to achieve our strategic and operational goals, including developing and introducing new products successfully and in a cost-effective and timely manner. If our revenue growth or employee levels vary significantly, our operating cash flows and financial condition could be adversely affected. Volatility or lack of positive performance in our stock price may also affect our ability to retain key employees, many of whom have experienced component shortagesbeen granted equity incentives. We may find it difficult to provide competitive equity incentives, and extendedour ability to hire, retain and motivate key personnel may suffer.
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As we focus on growth opportunities, we are divesting or discontinuing non-strategic product categories, or pursuing strategic acquisitions and investments, which could have an adverse impact on our business.
We regularly review our product portfolio and update our non-strategic product categories and products. Discontinuing products with service components may cause us to continue to incur expenses to maintain services within the product life cycle or may adversely affect our customer and consumer relationships and brand. Divestitures may also involve warranties, indemnification or covenants that could restrict our business or result in litigation, additional expenses or liabilities. In addition, discontinuing product categories, even categories that we consider non-strategic, reduces the size and diversification of our business and causes us to be more dependent on a smaller number of product categories.
As we attempt to grow our business in strategic product categories and emerging market geographies, we evaluate acquisition opportunities that could provide us with additional product or service offerings or with additional industry expertise, assets and capabilities. Acquisitions could result in difficulties integrating acquired operations, products, technology, internal controls, personnel and management teams and result in the diversion of capital and management’s attention away from other business issues and opportunities. If we fail to successfully integrate acquisitions, our business could be harmed. Acquisitions could also result in the assumption of known and unknown liabilities, product, regulatory and other compliance issues, dilutive issuances of our equity securities, the incurrence of debt, disputes over earn-outs or other litigation, and adverse effects on relationships with our and our target’s employees, customers and suppliers. Moreover, our acquisitions may not be successful in achieving our desired strategy, product, financial or other objectives or expectations, which would also cause our business to suffer.
Acquisitions can also lead timesto large non-cash charges that can have an adverse effect on semiconductors,our results of operations as a result of write-offs for items such as micro-controllersfuture impairments of intangible assets and optical sensors,goodwill, restructuring charges, inventory write downs or the recording of share-based compensation.
If we divest or discontinue product categories or products that we previously acquired, or if the value of those parts of our business become impaired, we may need to evaluate the carrying value of our goodwill. Additional impairment charges could adversely affect our results of operations. Several of our past acquisitions have not been successful and base metals usedhave led to significant impairment charges. Acquisitions and divestitures may also cause our operating results to fluctuate and make it difficult for investors to compare operating results and financial statements between periods. In addition, from time to time we make strategic venture investments in other companies that provide products and services that are complementary to ours. If these investments are unsuccessful, this could have an adverse impact on our products. Shortages or interruptionsresults of operations, operating cash flows and financial condition.
As we continue our efforts to lower our costs and improve our operational efficiency, we may not fully realize our goals.
Our ability to achieve the desired and anticipated cost savings and other benefits from simplification, cost-cutting and restructuring activities, and within our desired and expected timeframes, are subject to many estimates and assumptions, and the actual savings and timing for those savings may vary materially based on factors such as local labor regulations, negotiations with third parties, and operational requirements. These estimates and assumptions are also subject to significant economic, competitive and other uncertainties, some of which are beyond our control. There can be no assurance that we will fully realize the desired and anticipated benefits from these activities. To the extent that we are unable to improve our operational efficiency, further restructuring measures may be required in the supplyfuture. Furthermore, we are expecting to be able to use the anticipated cost savings from these activities to fund and support our current growth opportunities and incremental investments for future growth. If the cost-savings and other benefits from restructuring activities do not materialize as anticipated, or within our expected timeframes, our ability to invest in growth may be limited and our business and operating results may be adversely affected.
Product quality issues could adversely affect our reputation, business and operating results.
The products that we sell or third-party components included therein could contain defects in design or manufacture. There can be no assurance we will be able to detect and remedy all defects in the hardware and software we sell. Failure to do so could result in product recalls, product liability claims and litigation, product redesign efforts, lost revenue, loss of components or subcontracted products, orreputation, and significant warranty and other expenses to remedy.
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While we maintain reserves for reasonably estimable liabilities and purchase liability insurance, our inabilityreserves may not be adequate to procure these components or products from alternate sources at acceptable prices in a timely manner, could delay shipment ofcover such claims and liabilities and our products or increaseinsurance is subject to deductibles and may not be adequate to cover such claims and liabilities. Furthermore, our production costs, which couldcontracts with distributors and retailers may contain warranty, indemnification and other provisions related to product quality issues, and claims under those provisions may adversely affect our business and operating results.
We conduct operations internationally and as a result, adverse global and regional economic and geopolitical conditions have in the past and can in the future materially adversely affect our business, results of operations and financial condition.
Such conditions, including but not limited to inflation, slower growth or both.recession, new or increased tariffs, trade restrictions, changes to fiscal and monetary policy, higher interest rates and currency fluctuations, and other conditions that are susceptible to impact consumer confidence and spending could adversely affect demand for our products. In fiscal year 2023, we were impacted by adverse macroeconomic and geopolitical conditions including but not limited to inflation, foreign currency fluctuations, and slowdown of economic activity around the world, in part due to changes in interest rates, and lower consumer and enterprise spending. In addition, the war in Ukraine increased global supply chain, logistics, and inflationary challenges. In the fourth quarter of fiscal year 2022, we indefinitely ceased all sales and shipments to Russia. Our sales in Ukraine have also been halted due to the ongoing military operations on the Ukrainian territory. We filedhad no revenues from Russia and Ukraine in fiscal year 2023.
Global or regional economic and political conditions also have an impact on our report forsuppliers, contract manufacturers, logistics providers, and distributors, causing volatility in cost of materials and shipping and transportation rates, and as a result impacting the calendar year 2018 with the SEC on May 31, 2019.pricing of our products. Price increases may not successfully offset cost increases or may cause us to lose market share and in turn adversely impact our operations.
We conduct operations in a number of countries and have invested significantly in growing our sales and marketing activities in China, and the effect of business, legal and political risks associated with international operations could adversely affect us.
We conduct operations in a number of countries and have invested significantly in growing our personnel and sales and marketing activities in China and, to a lesser extent, other emerging markets. We may also increase our investments to grow sales in other emerging markets, such as Latin America, Eastern Europe, the Middle East and Africa. There are risks inherent in doing business in international markets, including:
•Difficulties in staffing and managing international operations;
•Compliance with increasing amounts of laws and regulations, including environmental, tax, import/export and anti-corruption laws, which vary from country to country, and the European Union legislation, and over time, increasing the costs of compliance and potential risks of non-compliance;
•Varying laws, regulations and other legal protections, uncertain and varying enforcement of those laws and regulations, dependence on local authorities, and the importance of local networks and relationshipsrelationships;
•Varying accounting, auditing and financial reporting standards, accountability and protections, including risks related to the lack of access by the Public Company Accounting Oversight Board (United States) (PCAOB)("PCAOB") to inspect PCAOB-registered accounting firms in emerging market countries such as China;
•Exposure to political, economic and financial instability, especially withincluding due to the uncertainty associated with the ongoing sovereign debt crisisissues in certain Euro zone countries, and the stability of the European Union, which may lead to reduced sales, currency exchange losses and collection difficulties or other losses;
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•Import or export restrictions or licensing requirements that could affect some of our products, including those with encryption technology;
•Trade protection measures, custom duties, tariffs, import or export duties, and other trade barriers, restrictions and regulations, including recent and ongoing United States - China tariffs and trade restrictions;restrictions, including China's 2021 Anti-Foreign Sanctions Law;
•Lack of infrastructure or services necessary or appropriate to support our products and services;
•Effects of the COVID-19 pandemic that may be more concentrated where we operate internationally;
•Exposure to fluctuations in the value of local currencies;
•Difficulties and increased costs in establishing sales and distribution channels in unfamiliar markets, with their own market characteristics and competition, including entrenched local competition;
•Weak protection of our intellectual property rights;
•Higher credit risks;
•ChangesVariations in VAT (value-added tax) or VAT reimbursement;
•Imposition of currency exchange controls;
•Delays from customs brokers or government agencies; and
•A broad range of customs, consumer trends, and more.
Any of these risks could adversely affect our business, financial condition and operating results.
Sales growth in key markets, including China, is an important part of our expectations for our business. As a result, if economic, political or business conditions deteriorate in these markets, or if one or more of the risks described above materialize in these markets, our overall business and results of operations will be adversely affected.
Changes in trade policy and regulations in the United States and other countries, including changes in trade agreements and the imposition of tariffs and the resulting consequences, may have adverse impacts on our business, results of operations and financial condition.
In addition, the current Chinese administration has imposed an increased volume of regulation creating a more challenging environment for non-Chinese companies operating in the region, including in the areas of intellectual property, trade, contract enforcement, data privacy, capital markets and implemented are having an adverse effect on certain of our products, tariffs announced but not yet implementedhuman rights. As a result, such regulations may have an adversethe effect of limiting our growth and market share in China, and disrupting manufacturing and operations in the region.
For example, on manyJune 10, 2021, the National People’s Congress Standing Committee of our products,the People’s Republic of China passed China's new Anti-Foreign Sanctions Law. The Anti-Foreign Sanctions Law took immediate effect and threatenedallows China to take “retaliatory action” against any “discriminatorily restrictive measures” imposed by foreign countries against Chinese organizations and citizens. As a result, China may impose countermeasures against government and private entities and/or persons that formulate, implement or comply with any regulation deemed a
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“discriminatorily restrictive measure.” Penalties may include denial of entry to China, prohibition of doing business in or with China, freezing of assets and “any other necessary measures.”
New or increased tariffs could adversely affect more or all of our products. There also are also risks associated with retaliatory tariffs and resulting trade wars. We cannot predict future trade policy and regulations in the United States and other countries, the terms of any renegotiated trade agreements or treaties, or tariffs and their impact on our business. A trade war could have a significant adverse effect on world trade and the world economy. To the extent that trade tariffs and other restrictions imposed by the United States or other countries increase the price of, or limit the amount of, our products or components or materials used in our products imported into the United States or other countries, or create adverse tax consequences, the sales, cost or gross margin of our products may be adversely affected and the demand from our customers for products and services may be diminished. Uncertainty surrounding international trade policy and regulations as well as disputes and protectionist measures could also have an adverse effect on consumer confidence and spending. If we deem it necessary to alter all or a portion of our activities or operations in response to such policies, agreements or tariffs, our capital and operating costs may increase.
In addition, as a result of Russia’s invasion of Ukraine in February 2022, sanctions and trade restrictions have been imposed on Russia, including banks, businesses, and individuals, by the U.S., the European Union and Switzerland. This conflict has driven and could continue to drive economic uncertainty, including inflation, and component availability, among other things.
Our ongoing efforts to address these risks may not be effective and may have long-term adverse effects on our operations and operating results that we may not be able to reverse. Such efforts may also take time to implement or to have an effect and may result in adverse quarterly financial results or fluctuations in our quarterly financial results. As a result, changes in international trade policy and regulations in the United States and other countries as well as changes in trade agreements and tariffs and sanctions imposed on Russia could adversely affect our business, results of operations and financial condition.
Our financial performance is subject to risks associated with fluctuations in currency exchange rates.
A significant portion of our business is conducted in currencies other than the U.S. Dollar. Therefore, we face exposure to movements in currency exchange rates.
Our primary exposure to movements in currency exchange rates relates to non-U.S. Dollar-denominated sales and operating expenses worldwide. For fiscal year 2020,2023, approximately 50% 51% of our revenue was in non-U.S. denominated currencies. The weakening of currencies relative to the U.S. Dollar adversely affects the U.S. Dollar value of our non-U.S. Dollar-denominated sales and earnings. If we raise international pricing to compensate, it could potentially reduce demand for our products, adversely affecting our sales and potentially having an adverse impact on our market share. Margins on sales of our products in non-U.S. Dollar-denominated countries and on sales of products that include components obtained from suppliers in non-U.S. Dollar-denominated countries could be adversely affected by currency exchange rate fluctuations. In some circumstances, for competitive or other reasons, we may decide not to raise local prices to fully offset the U.S. Dollar’s strengthening, which would adversely affect the U.S. Dollar value of our non-U.S. Dollar-denominated sales and earnings. Competitive conditions in the markets in which we operate may also limit our ability to increase prices in the event of fluctuations in currency exchange rates. Conversely, strengthening of currency rates may also increase our product component costs and other expenses denominated in those currencies, adversely affecting operating results. We further note that a larger portion of our sales than of our expenses are denominated in non-U.S. denominated currencies.
We use derivative instruments to hedge certain exposures to fluctuations in currency exchange rates. The use of such hedging activities may not offset any, or more than a portion, of the adverse financial effects of unfavorable movements in currency exchange rates over the limited time the hedges are in place and do not protect us from long term shifts in currency exchange rates.
As a result, fluctuations in currency exchange rates could affect and have in the past adversely affectaffected our business, operating results and financial condition. Moreover, these exposures may change over time.
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We are subject to risks related to our environmental, social and governance ("ESG") activities and disclosures.
Concerns over climate change have resulted and may in the future result in new or additional legal, legislative and regulatory requirements to reduce or mitigate the effects of climate change on the environment, which could result in future tax, transportation and other cost increases that could adversely affect our business. Compliance with such requirements will also require additional expenditures by us or our suppliers, which could have a material adverse effect on our business, results of operations, financial condition and cash flows.
In addition, ESG reporting and disclosure requirements continue to evolve, with increasing global regulation and heightened investor expectations. Companies must develop an expanded set of metrics and measures, data collection and processing, controls, and reporting processes in order to meet regulatory requirements and stakeholder expectations. Failure to promptly and accurately meet these expectations and requirements may result in reputational and brand damage, regulatory penalties and litigation among other things.
As a company operating in many markets and jurisdictions, expanding into new growth categories, and engaging in acquisitions, and as a Swiss, dual-listed company, we are subject to risks associated with new, existing and potential future laws and regulations.
As a Swiss company with shares listed on both the SIX Swiss Exchange and the Nasdaq Global Select Market, we are also subject to both Swiss and United States corporate governance and securities laws and regulations. In addition to the extra costs and regulatory burdens of our dual regulatory obligations, the two regulatory regimes may not always be compatible and may impose disclosure obligations, operating restrictions or tax effects on our business to which our competitors and other companies are not subject. For example, on January 1, 2014,2023, subject to certain transitional provisions, the revised Swiss Corporate Law incorporating the Swiss Federal Council Ordinance Against Excessive Compensation at Public Companies, (the Ordinance) became effective in connection with the Minder initiative approved byeffective. The revised Swiss voters during 2013. The Ordinance,Corporate Law among other things, (a) requires a binding shareholder “say on pay” vote with respect to the compensation of members of our executive management and Board of Directors, (b) generally prohibits the making of severance, advance, transaction premiums and similar payments to members of our executive management and Board of Directors, (c) imposes other restrictive compensation practices, and (d) requires that our articles of incorporation specify various compensation-related matters. In addition, during 2013, Swiss voters considered an initiative to limit pay for a chief executive officer to a multiple of no more than twelve times the salary of the lowest-paid employee. Although voters rejected that initiative, it did receive substantial voter support. The Ordinance, potentialPotential future initiatives relating to corporate governance or executive compensation, and Swiss voter sentiment in favor of such regulations may increase our non-operating costs and adversely affect our ability to attract and retain executive management and members of our Board of Directors.
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the U.S. (U.S. GAAP)("U.S. GAAP") which are subject to interpretation or changes by the FASB,Financial Accounting Standard Board ("FASB"), the SEC and other various bodies formed to promulgate and interpret appropriate accounting principles. New accounting pronouncements and changes in accounting principles have occurred in the past and are expected to occur in the future which may have a significant effect on our financial results or our compliance with regulations.
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As a result of changes in tax laws, treaties, rulings, regulations or agreements, or their interpretation, of Switzerland or any other country in which we operate, the loss of a major tax dispute or a successful challenge to our operating structure, intercompany pricing policies or the taxable presence of our key subsidiaries in certain countries, or other factors, our effective income tax rates may increase, which could adversely affect our net income and cash flows.
Switzerland or the canton of Vaud could result in a higher effective income tax rate, or a decreased tax asset, a charge to earnings and an accelerated pace of increase in our effective income tax rate, or a combination of such impacts, on our worldwide earnings and any such change will adversely affect our net income. Changes in our effective income tax rate may also make it more difficult to compare our net income and earnings per share between periods.
We operate in multiple jurisdictions and our profits are taxed pursuant to the tax laws of these jurisdictions. Our effective income tax rate may be affected by changes in or interpretations of tax laws, treaties, rulings, regulations or agreements in any given jurisdiction, or changes in international tax reform by the Organization for Economic Co-operation and Development and similar organizations, utilization of net operating loss and tax credit carryforwards, changes in geographical allocation of income and expense, and changes in management’s assessment of matters such as the realizability of deferred tax assets. In the past, we have experienced fluctuations in our effective income tax rate. Our effective income tax rate in a given fiscal year reflects a variety of factors that may not be present in the succeeding fiscal year or years. There is no assurance that our effective income tax rate will not change in future periods.
We file Swiss and foreign tax returns. We are frequently subject to tax audits, examinations and assessments in various jurisdictions. If any tax authority successfully challenges our operational structure, intercompany pricing policies or the taxable presence of our key subsidiaries in certain countries, if the terms of certain income tax treaties are interpreted in a manner that is adverse to our structure, or if we lose a material tax dispute in any country, our effective income tax rate could increase. For example, policy changes in Switzerland, the United States or China predicated on our presence in those countries could adversely affect where we recognize profit and our effective income tax rate. A material assessment by a governing tax authority could adversely affect our profitability. If our effective income tax rate increases in future periods, our net income and cash flows could be adversely affected.
We maintain cash and cash equivalents at financial institutions and are exposed to credit risk in the event of default by such financial institutions.
We maintain cash and cash equivalents with various creditworthy financial institutions and while we have a policy to limit exposure with any one financial institution, we are exposed to credit risk in the event of default by financial institutions to the extent that cash balances with individual financial institutions are in excess of amounts that are insured. If such institutions were to fail, we could lose all or a portion of amounts held in excess of such insurance limits. Any material loss that we may experience in the future as a result could additionally have an adverse effect on our ability to pay or could delay payments of our operational expenses and other payments, including in connection with our dividend, share repurchases, payments to our vendors and employees and cause other operational impacts.
Risks Related to Confidential Information, Cybersecurity, Privacy, and Intellectual Property
Losses or unauthorized access to or releases of confidential information could adversely affect our business and result in significant reputational, financial and legal consequences.
We use and store confidential information, including but not limited to our business, financial, legal and governance information, as well as personal information about our employees, members of our Board of Directors and customers. In addition, as a consumer electronics company, our websites are an important presentation of our company, identity and brands and an important means of interaction with and source of information for consumers
Logitech International S.A. | Fiscal 2023 Form 10-K | 27
of our products. We also rely on our centralized information technology systems for product-related information and to store intellectual property and data, forecast our business, maintain financial records, manage operations and inventory, and operate other critical functions. We allocate significant resources to maintain our information technology systems and deploy network security, data encryption, training and other measures to protect against unauthorized access or misuse.
Nevertheless, our websites and information technology systems have been and could continue to be subject to or threatened with, and are susceptible to damage, disruptions or shutdowns due to power outages, hardware failures, structural or operational failures, computer viruses, ransomware and other malware, attacks by computer hackers and other third parties, employee error or malfeasance, phishing and other means of social engineering, other data security issues, telecommunication failures, user error, employee or contractor negligence or malfeasance, catastrophes, downtime due to system or software upgrades, integration or migration, or other foreseeable and unforeseen events. Such risks extend not only to our own products, services, systems and networks, but also to those of customers, suppliers, contractors, business partners, vendors, and other third parties, particularly as all parties increasingly digitize their operations. To date, we are not aware of any such disruptions or issues impacting our systems or products having resulted in security incidents with a material impact on us, individually or in the aggregate.
Moreover, there is an increased risk that we may experience security breaches or incidents as a result of our employees, service providers and third parties working remotely. In addition, our growth and increased frequency and sophistication of cyber and product security attacks may increase the likelihood of our becoming a target of complex and damaging attacks that substantially disrupt operations and expose sensitive data.
While we have developed and implemented security measures and processes designed to protect against cyber and other security threats, such measures cannot provide absolute security and may not be successful in preventing future security breaches. Moreover, we may need to implement additional protective measures to reduce the risk of potential security breaches and security incidents, which could cause us to incur significant additional expenses.
Security incidents or breaches impacting the information we or our third-party service providers process or maintain, or our products, websites or information technology systems may result in loss, unavailability, corruption, or unauthorized collection, use, disclosure or other processing of personal data and other confidential information that we and our service providers maintain and otherwise process. Any such incidents or breaches, or the belief or perception that any such matters have occurred could result in disruptions of our operations, loss of intellectual property and loss, corruption, unavailability or other unauthorized processing of data. Any such event could also damage our brand and reputation or otherwise harm our business, and could result in government enforcement actions, litigation and potential liability for us. Any of these may adversely affect our business, results of operations and financial condition, potentially in a material manner.
In addition, while we carry cyber insurance, we cannot be certain that our insurance will be sufficient to cover losses and liabilities resulting from cyberattacks, security breaches and incidents, or other interruptions, that insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim, any of which could have a material adverse effect on our business, including our financial condition, results of operations and reputation.
The collection, storage, transmission, use and distribution of personal data could give rise to liabilities and additional costs of operation as a result of laws, governmental regulation and risks of data breaches and security incidents.
In connection with our operations, we collect and otherwise process personal data, including that of our consumers. The processing of this information is increasingly subject to legislation, regulations and enforcement in numerous jurisdictions around the world. Global data privacy regulation is increasingly fragmented, with increasing enforcement efforts and penalties. Such fragmentation requires more complex and costly compliance structures, while heightened enforcement increases the cost and reputational risk associated with even minor compliance errors. For example, the General Data Protection Regulation ("GDPR"), which is applicable to us and to all companies processing data of people in the European Union, imposes significant fines and sanctions for violation of the Regulation. Compliance with the GDPR's international transfer rules has been made more difficult by the invalidation of the European Union-U.S. Privacy Shield and we are now required to put in place additional privacy
Logitech International S.A. | Fiscal 2023 Form 10-K | 28
protective measures for transfer of data of people in the European Union to certain countries outside of the European Economic Area. In the United States, several states have adopted broad privacy laws. Such laws and regulations are typically intended to protect the privacy and security of personal information and its collection, storage, transmission, use, disclosure and other processing. For example, California has enacted the California Consumer Privacy Act (the “CCPA”), which, among other things, requires covered companies to provide disclosures to California consumers and afford such consumers abilities to opt-out of certain sales of personal information. Additionally, the California Privacy Rights Act (the “CPRA”), was approved by California voters in November 2020. The CPRA significantly modifies the CCPA and has made compliance more uncertain and complex. Additionally, other U.S. states continue to propose, and in certain cases adopt, privacy-focused legislation. Other laws and regulations may follow, at state and federal levels.
In addition, because various jurisdictions have different laws and regulations concerning the use, storage, transmission and other processing of such information, we may face requirements that pose compliance challenges in existing markets as well as new international markets that we seek to enter. The collection and processing of personal data also heightens the risk of security breaches and other data security issues related to our IT systems and the systems of third-party data storage and other service and IT providers. Such laws and regulations, variation between jurisdictions and risks presented by our processing of personal data could limit our ability to use data and develop new features and services, subject us to increased costs, require allocation of additional resources and changes to our policies and practices, which may be difficult to achieve in a commercially reasonable manner or at all. Any actual or perceived failure by us to comply with these laws, regulations, or other actual or asserted obligations relating to privacy or the collection, use or other processing of personal data may lead to significant fines, penalties, regulatory investigations, lawsuits, significant costs for remediation, damage to our reputation, or other liabilities, all of which could adversely affect our business.
Claims by others that we infringe their proprietary technology could adversely affect our business.
We have been expanding the categories of products we sell, such as entering new markets and introducing products for tablets, other mobile devices, digital music, and video collaboration.sell. We expect to continue to enter new categories and markets. As we do so, we face an increased risk that claims alleging we infringe the patent or other intellectual property rights of others, regardless of the merit of the claims, may increase in number and significance. Infringement claims against us may also increase as the functionality of video, voice, data and conferencing products begin to overlap. This risk is heightened by the increase inpersistent lawsuits brought by holders of patents that do not have an operating business or are attempting to license broad patent portfolios and by the increasing attempts by companies in the technology industries to enjoin their competitors from selling products that they claim infringe their intellectual property rights. Intellectual property lawsuits are subject to inherent uncertainties due to the complexity of the technical issues involved, and we cannot be certain that we will be successful in defending ourselves against intellectual property claims. A successful claimant could secure a judgment that requires us to pay substantial damages or prevents us from distributing certain products or performing certain services. We might also be required to seek a license for the use of such intellectual property, which may not be available on commercially acceptable terms or at all. Alternatively, we may be required to develop non-infringing technology, which could require significant effort and expense and may ultimately not be successful. Any claims or proceedings against us, whether meritorious or not, could be time consuming, result in costly litigation or the diversion of significant operational resources, or require us to enter into royalty or licensing agreements, any of which could materially and adversely affect our business and results of operations.
We may be unable to protect our proprietary rights. Unauthorized use of our technology may result in the development of products that compete with our products.
Our future success depends in part on our proprietary technology, technical know-how and other intellectual property. We rely on a combination of patent, trade secret, copyright, trademark and other intellectual property laws, and confidentiality procedures and contractual provisions such as nondisclosure terms and licenses, to protect our intellectual property.
We hold various United States patents and pending applications, together with corresponding patents and pending applications from other countries. It is possible that any patent owned by us will be invalidated, deemed unenforceable, circumvented or challenged, that the patent rights granted will not provide competitive advantages to us, or that any of our pending or future patent applications will not be granted.granted, maintained or enforced. In addition, other intellectual property laws or our confidentiality procedures and contractual provisions may not adequately protect our intellectual property. Also, others may independently develop similar technology, duplicate our products, or design
around our patents or other intellectual property rights. Unauthorized parties have copied and may in the future attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. Any of these events could adversely affect our business, financial condition and operating results.
Logitech International S.A. | Fiscal 2023 Form 10-K | 29
Risks Related to our Financial Results
Our operating results are difficult to predict and fluctuations in results may cause volatility in the price of our shares.
Our revenues and profitability are difficult to predict due to the nature of the markets in which we compete, fluctuating user demand, the uncertainty of current and future global economic conditions, and for many other reasons, including the following:
•Our operating results are highly dependent on the volume and timing of orders received during the quarter, which are difficult to forecast. Customers generally order on an as-needed basis and we typically do not obtain firm, long-term purchase commitments from our customers. As a result, our revenues in any quarter depend primarily on orders booked and shipped in that quarter.
•A significant portion of our quarterly retail sales typically occurs in the last weeks of each quarter, further increasing the difficulty in predicting quarterly revenues and profitability.
•Our sales are impacted by consumer demand and current and future global economic and political conditions, including inflation, foreign currency fluctuations, slowdown of economic activity around the world, in part due to rising interest rates, and lower consumer and enterprise spending, trade restrictions and tariffs, and can, therefore, fluctuate abruptly and significantly during periods of uncertain economic conditions or geographic distress, as well as from shifts in distributor inventory practices and consumer buying patterns.
•We must incur a large portion of our costs in advance of sales orders because we must plan research and production, order components, buy tooling equipment, and enter into development, sales and marketing, and other operating commitments prior to obtaining firm commitments from our customers. This makes it difficult for us to rapidly adjust our costs during the quarter in response to a revenue shortfall, which could adversely affect our reputation, business and our operating results.
•The COVID-19 pandemic there is an increased risk that we may experience security breach related incidents as a result of our employees, service providers, and third parties working remotely on less secure systems. Breaches or disruptions of our websites or information technology systems, breaches of confidential information, data corruption or other data security issues could adversely affect our brands, reputation, relationships with customers or business partners, or consumer or investor perception of our company, business or products or result in disruptions of our operations, loss of intellectual property or our customers’ or our business partners’ data, reduced value of our investmentshas led to evolving changes in our brands, design, researchsupply, operations, logistics and development or engineering, or costs to address regulatory inquiries or actions or private litigation, to respond to customers or partners or to rebuild or restore our websites or information technology systems.
•We engage in acquisitions and divestitures, and such activity varies from period to period. Such variance may affect our consumers. This information is increasingly subjectgrowth, our previous outlook and expectations, and comparisons of our operating results and financial statements between periods.
•We are continuously attempting to legislationsimplify our organization, to control operating costs through expense and regulations in numerous jurisdictions aroundglobal workforce management, to reduce the world, and especially in Europe. For example, the European Union adopted the General Data Protection Regulation (GDPR), which is applicable to uscomplexity of our product portfolio, and to all companies processing databetter align costs with our current business. We may not achieve the cost savings or other anticipated benefits from these efforts, and the success or failure of European Union residents, became effectivesuch efforts may cause our operating results to fluctuate and to be difficult to predict.
•Fluctuations in May 2018currency exchange rates can impact our revenues, expenses and imposesprofitability because we report our financial statements in U.S. Dollars, whereas a significant finesportion of our revenues and sanctionsexpenses are in other currencies. We attempt to adjust product prices over time to offset the impact of currency movements. However, over short periods of time, during periods of weakness in consumer spending or given high levels of competition in many product categories, our ability to change local currency prices to offset the impact of currency fluctuations is limited.
Because our operating results are difficult to predict, our results may be below the expectations of financial analysts and investors, which could cause the price of our shares to decline.
Logitech International S.A. | Fiscal 2023 Form 10-K | 30
Our gross margins can vary significantly depending on multiple factors, which can result in unanticipated fluctuations in our operating results.
Our gross margins can vary due to consumer demand, competition, product pricing, product lifecycle, product mix, new product introductions, unit volumes, acquisitions and divestitures, commodity, supply chain and logistics costs, capacity utilization, geographic sales mix, currency exchange rates, trade policy and tariffs, and the complexity and functionality of new product innovations and other factors. In particular, if we are not able to introduce new products in a timely manner at the product cost we expect, or if consumer demand for violation of the Regulation. Government actionsour products is less than we anticipate, or if there are typically intendedproduct pricing, marketing and other initiatives by our competitors to protect the privacy and security of personal information and its collection, storage, transmission, use and distribution inwhich we need to react or from the governing jurisdiction. that are initiated by us to drive sales that lower our margins, then our overall gross margin will be less than we project.
In addition, because various jurisdictionsour gross margins may vary significantly by product line, sales geography and customer type, as well as within product lines. When the mix of products sold shifts from higher margin product lines to lower margin product lines, to lower margin sales geographies, or to lower margin products within product lines, our overall gross margins and our profitability may be adversely affected.
As we expand within and into new product categories, our products in those categories may have different lawslower gross margins than in our traditional product categories. Consumer demand in these product categories, based on style, color and regulations concerning the use, storageother factors, tends to be less predictable and transmission of such information,tends to vary more across geographic markets. As a result, we may face requirements that pose compliance challenges in existing markets as well as new international markets that we seekhigher up-front investments, inventory costs associated with attempting to enter. The collection of user data heightens the risk of security breachesanticipate consumer preferences, and other data security issues related to our IT systems and the systems of third-party data storage and other service and IT providers. Such laws and regulations, and the variation between jurisdictions, as well as additional security measures and risk, could subject us to costs, allocation of additional resources, liabilities or negative publicity that could adversely affect our business.
The impact of the Sarbanes-Oxley Act and as recently asthese factors on gross margins can create unanticipated fluctuations in our audited financial statements for the fiscal year ended March 31, 2017, we have identifiedoperating results, which may cause volatility in the past and may, from time-to-time in the future, identify issues with our internal controls and deficiencies in our internal control over financial reporting. Certain of those material weaknesses resulted in late filings of and an amendment to our periodic reports and in restatementsprice of our financial results. A material weakness indicates a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. If additional material weaknesses or significant deficiencies in our internal controls are discovered or occur in the future, our consolidated financial statements may contain material misstatements and we could be required to restate our financial results, we could be subject to litigation which, whether meritorious or not, remediation efforts could be time consuming, costly and/or divert significant operational resources, we could lose investor confidence in the accuracy and completeness of our financial reports, and our reputation, business, results of operations and stock price could be adversely affected.shares.
We cannot ensure that our current share repurchase programprograms will be fully utilized or that it will enhance long-term shareholder value. Share repurchases may also increase the volatility of the trading price of our shares. We similarly cannot ensure that we will continue to increase our dividend payments or to pay dividends at all. Share repurchases and dividends diminish our cash reserves.
In May 2020,July 2022, our Board of Directors authorizedapproved a three-year $250.0$500 million increase to our current 2020 repurchase program of our registered shares. shares up to $1.5 billion. The Swiss Takeover Board approved this increase and it became effective on August 19, 2022. As of March 31, 2023, $505.8 million was available for repurchase under the 2020 repurchase program. We have also paid cash dividends and increased the size of our dividend, each year since fiscal year 2013. Our share repurchase programprograms and dividend policy may be affected by many factors, including general business and economic conditions, our financial condition and operating results, our views on potential future capital requirements, restrictions imposed in any future debt agreements, the emergence of alternative investment or acquisition opportunities, changes in our business strategy, legal requirements, changes in tax laws, and other factors. Our share repurchase program doesprograms do not obligate us to repurchase all or any of the dollar value of shares authorized for repurchase. The programprograms could also increase the volatility of the trading price of our shares. Similarly, we are not obligated to pay dividends on our registered shares. Under Swiss law, we may only pay dividends upon the approval of a majority of our shareholders, which is under the discretion of and generally follows a recommendation by our Board of Directors that such a dividend is in the best interests of our shareholders. There can be no assurance that our Board of Directors will continue to recommend, or that our shareholders will approve, dividend increases or any dividend at all. If we do not pay a regular dividend, we may lose the interest of investors that focus their investments on dividend-paying companies, which could create downward pressure on our share price. Any announcement of termination or suspension of our share repurchase programprograms or dividend may result in a decrease in our share price. The share repurchase programprograms and payment of cash dividends could also diminish our cash reserves that may be needed for investments in our business, acquisitions or other purposes. Without dividends, the trading price of our shares must appreciate for investors to realize a gain on their investment.
Logitech International S.A. | Fiscal 2023 Form 10-K | 31
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our headquarters is located in Lausanne, Switzerland, where we occupy approximately 50,500 square feet under a lease that expires in July 2020.2025. Our principal corporate and administrative offices, which includes our headquarters in Lausanne, Switzerland, and future corporate offices in San Jose, California (in the process of being relocated from our current corporate offices in Newark, CaliforniaCalifornia) and corporate offices in Hsinchu, Taiwan, together make up approximately 286,000250,000 square feet of leased space. Both our Lausanne, Switzerland headquarters and Newark,San Jose, California locationsfuture location are designed to serve our research and development, product marketing, sales management, technical support and administrative functions. Our Hsinchu, Taiwan location serves our mechanical engineering, process engineering, manufacturing support, quality assurance, design, research and development, and administrative functions. We maintain marketing and channel support offices in approximately 7780 locations and over 40 countries, with lease expiration dates from 20202023 to 2031.2033.
As of March 31, 2020,2023, the majority of our properties are leased; however, we also own some of the manufacturing units and employee dormitories in Suzhou, China, from which we occupy approximately 722,000720,000 square feet. We anticipate no difficulty in extending the leases of our facilities or obtaining comparable facilities in suitable locations. We also contract with various third-party distribution centers in North America, South America, Europe and Asia Pacific for additional warehouses in which we store inventory.
We believe that our manufacturing and distribution facilities are adequate for our ongoing needs and we continue to evaluate the need for facilities to meet current and anticipated future requirements.
ITEM 3. LEGAL PROCEEDINGS
From time-to-time, we are involved in claims and legal proceedings that arise in the ordinary course of our business. We are currently subject to several such claims and a small number of legal proceedings. We believe that these matters lack merit and we intend to vigorously defend against them. Based on the currently available information, we do not believe that resolution of pending matters will have a material adverse effect on our financial condition, cash flows or results of operations. However, litigation is subject to inherent uncertainties, and there can be no assurances that our defenses will be successful or that any such lawsuit or claim would not have a material adverse impact on our business, financial condition, cash flows and results of operations in a particular period. Any claims or proceedings against us, whether meritorious or not, can have an adverse impact because of defense costs, diversion of management and operational resources, negative publicity and other factors. Any failure to obtain a necessary license or other rights, or litigation arising out of intellectual property claims, could adversely affect our business.
As a result of Regulation S-K disclosure requirements related to environmental proceedings to which the government is a party and such proceedings involve potential monetary sanctions, we selected the quantitative threshold of $1.0 million.
ITEM 4. MINE SAFETY DISCLOSURES
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Logitech's shares are listed and traded on both the SIX Swiss Exchange, where the share price is denominated in Swiss francs, and on the Nasdaq Global Select Market, where the share price is denominated in U.S. Dollars. The trading symbol for Logitech shares is LOGN on the SIX Swiss Exchange and LOGI on the Nasdaq Global Select Market. As of May 18, 2020,3, 2023, there were 173,106,620 shares issued (including 5,289,05214,368,910 shares held as treasury stock) held by 17,14649,807 holders of record, and the closing price of our shares was CHF 53.0055.40 ($54.5561.89 based on exchange rates on such date) per share on the SIX Swiss Exchange and $54.64$62.68 per share as reported by the Nasdaq Global Select Market.
Dividends
Under Swiss law, a corporation may only pay dividends upon a vote of its shareholders. This vote typically follows the recommendation of the corporation's Board of Directors. In May 2020,2023, the Board of Directors recommended that the Company increase the cash dividend per share for fiscal year 20202023 by approximately 10%CHF 0.10 per share to CHF 134.01.06 per share (approximately $1.16 per share based on the exchange rate on March 31, 2023). Based on our shares outstanding, net of treasury shares, as of March 31, 2023 (159,343,273 shares), this would result in an aggregate gross dividend of approximately CHF 168.9 million ($138.7(approximately $184.2 million based on the exchange rate on March 31, 2020)2023). This amount may vary based on the number of shares outstanding, net of treasury shares, as of the record date for the dividend, but will not exceed approximately CHF 183.5 million (based on our shares currently issued or 173,106,620 shares). This recommendation will be voted on by our shareholders at the Company’s 2023 Annual General Meeting.
On September 4, 2019,14, 2022, Logitech's shareholders approved a cash dividend payment of CHF 121.8 million0.96 per share out of retained earnings to Logitech's shareholders who owedowned shares on September 19, 2019.27, 2022. Eligible shareholders were paid CHF 0.730.96 per share ($0.740.98 per share in U.S. Dollars)Dollars based on the exchange rate on the date of payment), totaling $124.2$158.7 million in U.S. Dollars on September 20, 2019. 28, 2022.
On September 5, 2018,8, 2021, Logitech's shareholders approved a cash dividend payment of CHF 110.7147.0 million out of retained earnings to Logitech shareholders who owned shares on September 18, 2018.21, 2021. Eligible shareholders were paid CHF 0.670.87 per share ($0.690.95 per share in U.S. Dollars), totaling $114.0$159.4 million in U.S. Dollars on September 21, 2018.22, 2021.
Dividends paid and similar cash or in-kind distributions made by Logitech to a holder of Logitech shares (including dividends or liquidation proceeds and stock dividends), other than distributions of qualifying additional paid-in-capital if it is available under the current Swiss tax regime, are subject to a Swiss federal anticipatory tax at a rate of 35%. The anticipatory tax must be withheld by Logitech from the gross distribution and paid to the Swiss Federal Tax Administration.
A Swiss resident holder and beneficial owner of Logitech shares may qualify for a full refund of the Swiss anticipatory tax withheld from such dividends. A holder and beneficial owner of Logitech shares who is a non-resident of Switzerland, but a resident of a country that maintains a double tax treaty with Switzerland, may qualify for a full or partial refund of the Swiss anticipatory tax withheld from such dividends by virtue of the provisions of the applicable treaty between Switzerland and the country of residence of the holder and beneficial owner of the Logitech shares.
In accordance with the tax convention between the United States and the Swiss Confederation (Treaty), a mechanism is provided whereby a U.S. resident (as determined under the Treaty), and U.S. corporations, other than U.S. corporations having a "permanent establishment" or a fixed base, as defined in the Treaty, in Switzerland, generally can obtain a refund of the Swiss anticipatory tax withheld from dividends in respect of Logitech shares, to the extent that 15% of the gross dividend is withheld as final withholding tax (i.e. 20% of the gross dividend may generally be refunded). In specific cases, U.S. companies not having a "permanent establishment" or a fixed base in Switzerland owning at least 10% of Logitech registered shares may receive a refund of the Swiss anticipatory tax withheld from dividends to the extent it exceeds 5% of the gross dividend (i.e., 30% of the gross dividend may be refunded). To get the benefit of a refund, holders must beneficially own Logitech shares at the time such dividend becomes due.
Logitech International S.A. | Fiscal 2023 Form 10-K | 33
Share Repurchases
In fiscal year 2020,2023, the following approved share buybackrepurchase program was in place (in thousands):
| Share Buyback Program | Approved Shares (1) | Approved Amounts | ||||
| March 2017 | 17,311 | $ | 250,000 | |||
| Share Repurchase Program | Approved Shares | Approved Amounts (1) | |||||||||
| May 2020 | 17,311 | $ | 1,500,000 | ||||||||
(1) The approvalIn April 2021, our Board of ourDirectors approved an increase of $750.0 million of the 2020 share buyback programs by therepurchase program, to an aggregate amount of $1.0 billion. The Swiss Takeover Board limitsapproved this increase and it became effective on May 21, 2021. In July 2022, our Board of Directors approved an increase of $500 million to the number2020 share repurchase program, to an aggregate amount of shares that we may repurchaseup to no more than 10% of our authorized share capital$1.5 billion. The Swiss Takeover Board approved this increase and voting rights.
The following table presentstables present certain information related to purchases made by Logitech of its equity securities under its publicly announced share buybackrepurchase programs (in thousands, except per share amounts):
| Weighted Average Price Per Share | Remaining Amount that May Yet Be Repurchased under the Program | |||||||||||||||||||||||||
| During Fiscal Year Ended | Shares Repurchased(1) | CHF (LOGN) | USD (LOGI) | |||||||||||||||||||||||
| March 31, 2021 | 1,845 | 81.35 | 89.20 | $ | 85,382 | |||||||||||||||||||||
| March 31, 2022 | 4,607 | 82.15 | 89.36 | $ | 423,696 | |||||||||||||||||||||
| March 31, 2023 | 7,562 | 52.94 | 55.25 | $ | 505,844 | |||||||||||||||||||||
| Weighted Average Price Per Share | Remaining Amount that May Yet Be Repurchased under the Program | ||||||||||||
| During Fiscal Year Ended | Shares Repurchased | CHF (LOGN) | USD (LOGI) | ||||||||||
| March 31, 2018 | 863 | 34.53 | — | $ | 219,893 | ||||||||
| March 31, 2019 | 808 | 39.58 | — | $ | 187,433 | ||||||||
| March 31, 2020 | 1,251 | 38.91 | — | $ | 137,386 | ||||||||
Total Number of Shares Repurchased | Weighted Average Price Paid Per Share | Remaining Amount that May Yet Be Repurchased under the Program | |||||||||||
| During the three months ended March 31, 2020 | CHF (LOGN) | USD (LOGI) | |||||||||||
| Month 1 | |||||||||||||
| December 28, 2019 to January 24, 2020 | — | — | — | $ | 172,409 | ||||||||
| Month 2 | |||||||||||||
| January 26, 2020 to February 21, 2020 | 228 | 43.03 | — | 162,432 | |||||||||
| Month 3 | |||||||||||||
| February 23, 2020 to March 31, 2020 | 634 | 37.32 | — | 137,386 | |||||||||
| 862 | 38.83 | — | $ | 137,386 | |||||||||
| Total Number of Shares Repurchased | Weighted Average Price Paid Per Share | Remaining Amount that May Yet Be Repurchased under the Program | ||||||||||||||||||||||||
| During the three months ended March 31, 2023 | CHF (LOGN) | USD (LOGI) | ||||||||||||||||||||||||
| Month 1 | ||||||||||||||||||||||||||
| January 1, 2023 to January 27, 2023 | ||||||||||||||||||||||||||
| SIX | 644 | 55.24 | — | $ | 557,808 | |||||||||||||||||||||
| Month 2 | ||||||||||||||||||||||||||
| January 28, 2023 to February 24, 2023 | ||||||||||||||||||||||||||
| SIX | 202 | 53.61 | — | 546,102 | ||||||||||||||||||||||
| Nasdaq | 54 | 59.00 | 542,904 | |||||||||||||||||||||||
| Month 3 | ||||||||||||||||||||||||||
| February 24, 2023 to March 31, 2023 | ||||||||||||||||||||||||||
| SIX | 695 | 49.11 | — | 505,844 | ||||||||||||||||||||||
| 1,595 | 52.33 | 56.68 | $ | 505,844 | ||||||||||||||||||||||
Performance Graph
The information contained in the Performance Graph shall not be deemed to be "soliciting material" or "filed" with the SEC or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), except to the extent that we specifically incorporate it by reference into a document filed under the Securities Act of 1933, as amended (the Securities Act), or the Exchange Act.
Logitech International S.A. | Fiscal 2023 Form 10-K | 34
The following graph compares the cumulative total stockholder return on our shares, the Nasdaq Composite Index, and the S&P 500 Information and Technology Index. The graph assumes that $100 was invested in our LOGI shares, the Nasdaq Composite Index and the S&P 500 Information and Technology Index on March 31, 2015,2018 and calculates the annual return through March 31, 2020.2023. The stock price performance on the following graph is not necessarily indicative of future stock price performance.
*$100 invested on March 31, 2015,2018, in stock or index, including reinvestment of dividends.
Fiscal year ending March 31.
Copyright© 20202023 Standard & Poor's, a division of S&P Global.Inc. Used with permission. All rights reserved.
| March 31, | ||||||||||||||||||||||||||||||||||||||
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |||||||||||||||||||||||||||||||||
| Logitech | $ | 100 | $ | 109 | $ | 121 | $ | 298 | $ | 212 | $ | 171 | ||||||||||||||||||||||||||
| Nasdaq Composite Index | $ | 100 | $ | 111 | $ | 111 | $ | 193 | $ | 209 | $ | 181 | ||||||||||||||||||||||||||
| S&P 500 Information and Technology Index | $ | 100 | $ | 115 | $ | 127 | $ | 212 | $ | 257 | $ | 245 | ||||||||||||||||||||||||||
| March 31, | ||||||||||||||||||||||||
| 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | |||||||||||||||||||
| Logitech | $ | 100 | $ | 126 | $ | 258 | $ | 303 | $ | 329 | $ | 366 | ||||||||||||
| Nasdaq Composite Index | $ | 100 | $ | 101 | $ | 124 | $ | 149 | $ | 165 | $ | 166 | ||||||||||||
| S&P 500 Information and Technology Index | $ | 100 | $ | 108 | $ | 135 | $ | 172 | $ | 199 | $ | 220 | ||||||||||||
ITEM 6. Selected Financial Data(Reserved)
Logitech International S.A. | Fiscal 2023 Form 10-K | 35
| Years ended March 31, | ||||||||||||||||||||
2020(1) | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||
| (in thousands, except for per share amounts) | ||||||||||||||||||||
| Consolidated statement of operations and cash flow data | ||||||||||||||||||||
| Net sales | $ | 2,975,851 | $ | 2,788,322 | $ | 2,566,863 | $ | 2,221,427 | $ | 2,018,100 | ||||||||||
| Operating income | $ | 276,495 | $ | 263,194 | $ | 229,733 | $ | 211,860 | $ | 129,058 | ||||||||||
Net income from continuing operations(1) | $ | 449,723 | $ | 257,573 | $ | 208,542 | $ | 205,876 | $ | 128,362 | ||||||||||
Loss from discontinued operations (2) | $ | — | $ | — | $ | — | $ | — | $ | (9,045 | ) | |||||||||
| Net income | $ | 449,723 | $ | 257,573 | $ | 208,542 | $ | 205,876 | $ | 119,317 | ||||||||||
| Net income (loss) per share - basic: | ||||||||||||||||||||
| Continuing operations | $ | 2.70 | $ | 1.56 | $ | 1.27 | $ | 1.27 | $ | 0.79 | ||||||||||
| Discontinued operations | $ | — | $ | — | $ | — | $ | — | $ | (0.06 | ) | |||||||||
| Net income per share - basic | $ | 2.70 | $ | 1.56 | $ | 1.27 | $ | 1.27 | $ | 0.73 | ||||||||||
| Net Income (loss) per share - diluted: | ||||||||||||||||||||
| Continuing operations | $ | 2.66 | $ | 1.52 | $ | 1.23 | $ | 1.24 | $ | 0.77 | ||||||||||
| Discontinued operations | $ | — | $ | — | $ | — | $ | — | $ | (0.05 | ) | |||||||||
| Net income per share - diluted | $ | 2.66 | $ | 1.52 | $ | 1.23 | $ | 1.24 | $ | 0.72 | ||||||||||
| Cash dividend per share | $ | 0.74 | $ | 0.69 | $ | 0.63 | $ | 0.57 | $ | 0.53 | ||||||||||
Net cash provided by operating activities | $ | 425,000 | $ | 305,181 | $ | 346,261 | $ | 288,389 | $ | 185,195 | ||||||||||
Net cash used in investing activities (3) | $ | (130,234 | ) | $ | (173,345 | ) | $ | (128,704 | ) | $ | (99,679 | ) | $ | (59,975 | ) | |||||
| March 31, | ||||||||||||||||||||
| 2020 | 2019 | 2018 | 2017 | 2016(4) | ||||||||||||||||
| Consolidated balance sheet data | ||||||||||||||||||||
| Cash and cash equivalents | $ | 715,566 | $ | 604,516 | $ | 641,947 | $ | 547,533 | $ | 519,195 | ||||||||||
| Total assets | $ | 2,363,474 | $ | 2,024,124 | $ | 1,743,157 | $ | 1,498,677 | $ | 1,324,147 | ||||||||||
| Total shareholders' equity | $ | 1,489,268 | $ | 1,176,339 | $ | 1,050,557 | $ | 856,111 | $ | 759,948 | ||||||||||
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these statements as a result of certain factors, including those set forth above in Item 1A Risk"Risk Factors," and below in Item 7A, Quantitative"Quantitative and Qualitative Disclosures about Market Risk." Please read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included under Item 8 of this Annual Report on Form 10-K.
Overview of Our Company
Our products participate in fiveaddress primarily four large market opportunities: Creativity & Productivity, Gaming, Video Collaboration Music and Smart Home.Music. We sell our products to a broad network of domestic and international customers, including direct sales to retailers, e-tailers, and e-tailers,end consumers through our e-commerce platform, and indirect sales to end customers through distributors. Our worldwide channel network includes consumer electronics distributors, retailers, mass merchandisers, specialty stores, computer and telecommunications stores, value-added resellers and online merchants.
From time to time, we may seek to partner with or acquire, when appropriate, companies that have products, personnel, and technologies that complement our strategic direction. We continually review our product offerings and our strategic direction in light of our profitability targets, competitive conditions, changing consumer trends and the evolving nature of the interface between the consumer and the digital world.
Impacts of COVID-19 to OurMacroeconomic and Geopolitical Conditions on our Business
In March 2020, the World Health Organization declared the outbreakfiscal year 2023, our business was impacted by adverse macroeconomic and geopolitical conditions. These conditions included inflation, foreign currency fluctuations, and slowdown of a novel coronavirus ("COVID-19") as a pandemic, which continues to spread throughout the world. The spread of COVID-19 has caused public health officials to recommend precautions to mitigate the spread of the virus and, in certain markets in which we operate, government authorities have issued orders that require the closure of non-essential businesses and people to be quarantined or to shelter-at-home. The COVID-19 pandemic has significantly curtailed global economic activity caused significant volatilityaround the world, in part due to rising interest rates, and disruptionlower consumer and enterprise spending. In addition, the war in Ukraine resulted in global financial and commercial markets, and is likely to lead to recessionary conditions for an indeterminate amount of time. We are conducting our business with substantial modifications, such as employee work locations and virtualization among other changes. We are continuing to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities in the countries in which we operate, or that we determine are in the best interest of our employees, customers, partners, suppliers or shareholders. It is not clear what the potential effects of COVID-19 or any such modifications or alterations may have on our business, results of operations, financial operations, financial condition and stock price.
The global and regional economic and political conditions adversely affect demand for our products. These conditions also had an impact on our suppliers, contract manufacturers, logistics providers, and distributors, causing volatility in many countries, there was high demandcost of materials and consumptionshipping and transportation rates, and as a result, impacting the pricing of our products. It is difficult to predict the progression, the duration and all of the effects of COVID-19, when business closure and shelter at home guidelines may be eased or lifted, and how consumer demand, inventory and logistical effects and costs may evolve over time, or the impact on our future sales and results of operations. Some of this impact will undoubtedly occur over multiple financial periods and may have a lag effect between periods, such as what we are able to manufacture in one period affecting sales, channel inventory or logistics costs in subsequent periods. The full extent of the impact of COVID-19 on our business and our operational and financial performance is currently uncertain and will depend on many factors outside our control.
For additional information, see "Liquidity"Liquidity and Capital resources"Resources" below and Item 1A "Item IA: Risk Factors,", including under the caption "The full effect of the COVID-19 pandemic is uncertainAdverse global and cannot be predicted,regional economic and the Company'sgeopolitical conditions can materially adversely affect our business, results of operations and financial condition," “We purchase key components and products from a limited number of sources, and our business and operating results could be adversely affected by the COVID-19 pandemic."
Trends in Our Businessand Uncertainties
Logitech International S.A. | Fiscal 2023 Form 10-K | 36
gain popularity through online gaming, multi-platform experiences and esports. In addition, the rise,democratization of digital content creation presents an opportunity for anyone to be a content creator because of the accessibility of the tools necessary to code, design, create, make music, game or broadcast to professional standards.
While we believe we will further benefit from these secular trends, we have experienced and companies increasingly want lower-cost, cloud-based solutions that can provide their employees with the ability to work from anywhere. We are continuing our efforts to create and sell innovative products to accommodate the increasing demand from medium and large-sized meeting rooms to small-sized rooms such as huddle rooms. We will continue to investexperience challenges that impact our business and financial results. These challenges include (i) the current macroeconomic environment, including interest rate fluctuations, inflation, foreign exchange movements and low economic growth in select business-specificcertain regions, (ii) low consumer confidence and recent declines in enterprise spending leading to reduced demand for some of our products, (both hardware(iii) the uncertainty in strategy and software), targeted product marketingtiming of enterprises’ “return-to-office” impacting demand for our Video Collaboration and Creativity & Productivity products, and (iv) the timing of further development of our business-to-business go-to-market capabilities.
We expect these challenges to continue in the near-term. We have taken steps to mitigate the impact of these challenges, including but not limited to: (i) reduction in our operating expenses as revenues have declined in order to maintain margins and size the business for the current market, (ii) reduction in inventories to more appropriately align with demand, (iii) continued investment in our business-to-business direct sales channel development.in order to improve performance, and (iv) release of new products to increase the value proposition of our portfolio.
Business Seasonality and Product Introductions and Business Acquisitions
We have historically experienced higher sales in our third fiscal quarter ending December 31, compared to other fiscal quarters in our fiscal year, primarily due to the increased consumer demand for our products during the year-end holiday buying season and year-end spending by enterprises. Additionally, new product introductions and business acquisitions can significantly impact sales, product costs and operating expenses. Product introductions can also impact our sales to distribution channels as these channels are filled with new product inventory following a product introduction, and often channel inventory of an earlier model product declines as the next related major product launch approaches. Sales can also be affected when consumers and distributors anticipate a product introduction or changes in business circumstances. However, neither historical seasonal patterns nor historical patterns of product introductions should be considered reliable indicators of our future pattern of product introductions, future sales or financial performance. Furthermore, cash flow is correspondingly lower in the first half of our fiscal year as we typically build inventories in advance for the third quarter and we pay an annual dividend following our Annual General Meeting, which is typically in September.
Sales for fiscal year 2023 decreased 25%, 17% and 9% in the EMEA, Americas and Asia Pacific regions, respectively, compared to fiscal year 2022.
Gross margin for fiscal year 2023 decreased by 340basis points to 37.9%, compared to fiscal year 2022, primarily due toinflationary pressure on costs and unfavorable impacts from changes in currency exchange rates, partially offset by a reduction in our transition outuse of our longstandingexpedited shipping.
Operating expenses for fiscal year 2023 were $1,261.0 million, or 27.8% of sales, compared to $1,489.0 million, or 27.2% of sales, for fiscal year 2022. The decrease in operating expenses was primarily driven by a reduction in marketing and advertising spend.
Included in the income tax rulingprovision of $98.9 million and $131.3 million in fiscal year 2023 and 2022 was $48.3 million and $88.7 million, respectively, of tax expense from the canton of Vaud.Switzerland.
Net income for fiscal year 2023 was $364.6 million, compared to $644.5 million for fiscal year 2022, reflecting lower sales and gross margin, partially offset by a reduction in operating expenses.
Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires us to make assumptions, judgments, estimates, and assumptionsestimates that affect reported amounts of assets, liabilities, sales and expenses, and the disclosure of contingent assets and liabilities.
Logitech International S.A. | Fiscal 2023 Form 10-K | 37
We consider an accounting estimate critical if it: (i) requires management to make judgments and estimates about matters that are inherently uncertain; and (ii) is important to an understanding of our financial condition and operating results.
We base our assumptions, judgments and estimates on historical experience and on various other assumptionsfactors that we believe to be reasonable under the circumstances. Although these assumptions, judgments, and estimates are based on management's best knowledge of current events and actions that may impact us in the future, actual results could differ from those estimates.differ. Management has discussed the development, selection and disclosure of these critical accounting estimates with the Audit Committee of the Board of Directors.
We believe the following accounting estimates are most critical to our business operations and to an understanding of our financial condition and results of operations and reflect the more significant judgments and estimates used in the preparation of our consolidated financial statements.
Accruals for Customer Programs and Product Returns
We record accruals for cooperative marketing, customer incentive, pricing programs (Customer Programs)("Customer Programs") and product returns. The estimated cost of these programs is usually recorded as a reduction of revenue. Significant management judgments and estimates must be used to determine the cost of these programs in any accounting period. Certain Customer Programs require management to estimate the percentage of those programs that will not be claimed in the current period or will not be earned by customers, based on historical experience and on the specific terms and conditions of particular programs. The percentage of these customer programs that will not be claimed or earnedwhich is commonly referred to as "breakage"."breakage." Breakage is estimated based on historical claim experience, the period in which the claims are expected to be submitted, specific terms and conditions with customers, and other factors. If we receive a separately identifiable benefit from a customer and can reasonably estimate the fair value of that benefit, the cost of the Customer Programs is recognized in operating expenses.
Customer Incentive Programs. Customer incentive programs include performance-based incentives and consumer rebates. We offer performance-based incentives to our customers and indirect partners based on pre-determined performance criteria. Consumer rebates are offered from time to time at our discretion for the primary benefit of end-users.
Product Returns. We grant limited rights to return products. Return rights vary by customer and range from just the right to return the defective product to stock rotation rights limited to a percentage of sales approved by management. Estimates of expected future product returns are recognized at the time of sale based on analyses of historical return trends by the customer and by product, inventories owned by and located at customers, current customer demand, current operating conditions, and other relevant customer and product information. Upon recognition, we reduce sales and cost of goods sold for the estimated return. Return trends are influenced by product life cycle status, new product introductions, market acceptance of products, sales levels, product sell-through, the type of customer, seasonality, product quality issues, competitive pressures, operational policies and procedures, and other factors. Return rates can fluctuate over time but are sufficiently predictable to allow us to estimate expected future product returns.
We apply a breakage rate to reduce our accruals of Customer Programs based on the estimated percentage of these customer programsCustomer Programs that will not be claimed or earned. The breakage rate is applied at the time of sale. SignificantAssessing the period in which claims are expected to be submitted and the relevance of the historical claim experience require significant management judgments and estimates are usedjudgment to determineestimate the breakage of the programsCustomer Programs in any accounting period.
We regularly evaluate the adequacy of our accruals for Customer Programs and product returns. Future market conditions and product transitions may require us to take action to increase such programs. In addition, when the variables used to estimate these costs change, or if actual costs differ significantly from the estimates, we would be required to record incremental increases or reductions to revenue or operating expenses.
Inventory Valuation
We must order components for our products and build inventory in advance of customer orders. Further, our industry is characterized by rapid technological change, short-term customer commitments and rapid changes in demand.
Logitech International S.A. | Fiscal 2023 Form 10-K | 38
We record inventories at the lower of cost and net realizable value and record write-downs of inventories that are obsolete or in excess of anticipated demand or net realizable value. A review of inventory is performed each fiscal quarter that considers factors including the marketability and product lifecycle stage, product development plans, component cost trends, historical sales, and demand forecasts that consider the assumptions about future demand and market conditions. Inventory on hand that is not expected to be sold or utilized is considered excess, and we recognize the write-down in the cost of goods sold at the time of such determination. The write-down is determined by the excess of cost over net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. At the time of loss recognition, new cost basis per unit and the lower-cost basis for that inventory are established and subsequent changes in facts and circumstances would not result in an increase in the cost basis. If there is an abrupt and substantial decline in demand for Logitech's products or an unanticipated change in technological or customer requirements, we may be required to record additional write-downs that could adversely affect gross margins in the period when the write-downs are recorded.
Accounting for Income Taxes
We operate in multiple jurisdictions and our profits are taxed pursuant to the tax laws of these jurisdictions. Our effective income tax rate may be affected by the changes in or interpretations of tax laws and tax agreements in any given jurisdiction, utilization of net operating loss and tax credit carryforwards, changes in geographical mix of income and expense, and changes in our assessment of matters such as the ability to realize deferred tax assets. As a result of these considerations, we must estimate income taxes in each of the jurisdictions in which we operate. This process involves estimating current tax exposure together with assessing temporary differences resulting from the different treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in the consolidated balance sheet.
We make certain estimates and judgments about the application of tax laws, the expected resolution of uncertain tax positions and other matters surrounding the recognition and measurement of uncertain tax benefits. In the event that uncertain tax positions are resolved for amounts different than our estimates, or the related statutes of limitations expire without the assessment of additional income taxes, we will be required to adjust the amounts of the related assets and liabilities in the period in which such events occur. Such adjustments may have a material impact on our income tax provision and our results of operations.
Adoption of New Accounting Pronouncements
Refer to Note 2 to the consolidated financial statements included in this Annual Report on Form 10-K for recent accounting pronouncements adopted andadopted.
Inflation Reduction Act in the U.S.
On August 16, 2022, the “Inflation Reduction Act” (H.R. 5376) ("IRA") was signed into law in the U.S. The IRA establishes a new corporate alternative minimum tax based on financial statement income adjusted for certain items. The new minimum tax is effective for tax years beginning after December 31, 2022. We do not expect the IRA will have a material impact to be adopted.our financial statements when it becomes effective.
Constant Currency
We refer to our net sales growth rates excluding the impact of currency exchange rate fluctuations as "constant currency" sales growth rates. Percentage of constant currency sales growth is calculated by translating prior period sales in each local currency at the current period’s average exchange rate for that currency and comparing that to current period sales.
Given our global sales presence and the reporting of our financial results in U.S. Dollars, our financial results could be affected by significant shifts in currency exchange rates. See “Results of Operations” for information on the effect of currency exchange resultsrate fluctuations on our sales. If the U.S. Dollar appreciates or depreciates in comparison to other currencies in future periods, this will affect our results of operations in future periods as well.
Logitech International S.A. | Fiscal 2023 Form 10-K | 39
References to Sales
The term “sales” means net sales, except as otherwise specified and the sales growth discussion and sales growth rate percentages are in U.S. Dollars, except as otherwise specified.
Results of Operations
In this section, we discuss the results of our operations for the year ended March 31, 2023 compared to the year ended March 31, 2022. For a discussion of the year ended March 31, 2022 compared to the year ended March 31, 2021, please refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K filed with the SEC on May 18, 2022.
Net Sales
Sales Denominated in Other Currencies
Although our financial results are reported in U.S. Dollars, a portion of our sales was generated in currencies other than the U.S. Dollar, such as the Euro, Chinese Yuan,Renminbi, Japanese Yen, Australian Dollar, Canadian Dollar, Pound Sterling and New Taiwan Dollar, British PoundDollar. For the years ended March 31, 2023 and Australian Dollar. For each of the fiscal years 2020, 20192022, approximately 51% and 2018, 50%, respectively, of our sales were denominated in currencies other than the U.S. Dollar.
Sales by Region
The following table presents the change in sales by region for fiscal year 20202023 compared with fiscal year 2019, and fiscal year 2019 compared with fiscal year 2018:2022:
| 2023 vs. 2022 | ||||||||||||||||||||||||||
| Sales Growth Rate | Sales Growth Rate in Constant Currency | |||||||||||||||||||||||||
| Americas | (17) | % | (17) | % | ||||||||||||||||||||||
| EMEA | (25) | (17) | ||||||||||||||||||||||||
| Asia Pacific | (9) | (3) | ||||||||||||||||||||||||
| 2020 vs. 2019 | 2019 vs. 2018 | |||||||||||
| Sales Growth Rate | Sales Growth Rate in Constant Currency | Sales Growth Rate | Sales Growth Rate in Constant Currency | |||||||||
| Americas | 8 | % | 8 | % | 6 | % | 7 | % | ||||
| EMEA | 9 | 13 | 5 | 7 | ||||||||
| Asia Pacific | 2 | 4 | 17 | 19 | ||||||||
The increasedecrease in sales in the Americas region for fiscal year 2020 of 8%2023, compared withto fiscal year 2019 was driven by growth in Video Collaboration, Keyboards and Combos, Tablet & Other Accessories, Audio PC & Wearables, Gaming, Pointing Devices, and PC Webcams, partially offset by sales declines in Mobile Speakers and Smart Home.
EMEA:
The increasedecrease in sales in the EMEA region for fiscal year 2019 of 17%2023, compared withto fiscal year 20182022, was primarily driven by decreases in sales increases in Gaming, Keyboards & Combos, PC Webcams and Pointing Devices.
Asia Pacific:
The decrease in sales in the Asia Pacific region for fiscal year 2023, compared to fiscal year 2022, was primarily driven by decreases in sales of Keyboards & Combos, PC Webcams, Audio & Wearables, and Video Collaboration, Keyboard & Combos and Pointing Devices,partially offset by an increase in sales declines in Mobile Speakers.of Gaming.
Logitech International S.A. | Fiscal 2023 Form 10-K | 40
Sales by Product Categories
Sales by product categories for fiscal years 2020, 20192023 and 20182022 were as follows (Dollars in thousands):
| Years Ended March 31, | Change | |||||||||||||||||||
| 2023 | 2022 | 2023 vs. 2022 | ||||||||||||||||||
| Pointing Devices | $ | 728,357 | $ | 781,108 | (7) | % | ||||||||||||||
| Keyboards & Combos | 836,432 | 967,301 | (14) | |||||||||||||||||
| PC Webcams | 227,692 | 403,651 | (44) | |||||||||||||||||
| Tablet & Other Accessories | 254,374 | 310,123 | (18) | |||||||||||||||||
Gaming (1) | 1,211,485 | 1,451,883 | (17) | |||||||||||||||||
| Video Collaboration | 887,517 | 997,164 | (11) | |||||||||||||||||
| Mobile Speakers | 111,649 | 149,782 | (25) | |||||||||||||||||
| Audio & Wearables | 274,231 | 401,424 | (32) | |||||||||||||||||
Other (2) | 7,081 | 18,665 | (62) | |||||||||||||||||
| Total Sales | $ | 4,538,818 | $ | 5,481,101 | (17) | % | ||||||||||||||
| Years Ended March 31, | Change | |||||||||||||||||
| 2020 | 2019 | 2018 | 2020 vs. 2019 | 2019 vs. 2018 | ||||||||||||||
| Pointing Devices | $ | 544,519 | $ | 536,890 | $ | 516,637 | 1 | % | 4 | % | ||||||||
| Keyboards & Combos | 571,720 | 536,619 | 498,472 | 7 | 8 | |||||||||||||
| PC Webcams | 129,193 | 121,282 | 112,147 | 7 | 8 | |||||||||||||
| Tablet & Other Accessories | 135,309 | 128,315 | 107,942 | 5 | 19 | |||||||||||||
| Video Collaboration | 365,616 | 259,521 | 182,717 | 41 | 42 | |||||||||||||
| Mobile Speakers | 221,791 | 230,378 | 314,817 | (4 | ) | (27 | ) | |||||||||||
| Audio & Wearables | 273,752 | 277,429 | 252,330 | (1 | ) | 10 | ||||||||||||
| Gaming | 690,174 | 648,130 | 491,995 | 6 | 32 | |||||||||||||
| Smart Home | 43,404 | 49,344 | 89,373 | (12 | ) | (45 | ) | |||||||||||
Other (1) | 373 | 414 | 433 | (10 | ) | (4 | ) | |||||||||||
| Total Sales | $ | 2,975,851 | $ | 2,788,322 | $ | 2,566,863 | 7 | 9 | ||||||||||
Creativity & Productivity market:
Pointing Devices
Our Pointing Devices category comprises PC- and Mac-related mice including trackballs, touchpads and presenters.
During fiscal year 2019,2023, Pointing Devices sales increased 4%decreased 7%, compared to fiscal year 2018. The increase was2022, primarily driven by the increasesdecrease in sales of cordless and corded mice, and presentation tools. The increaseparticularly in cordless mice was led by strong contribution from MX family of premium cordless mice, including the Vertical Wireless Mouse introduced in the second quarter of fiscal year 2019 as well as continued performance for MX Master 2S Wireless Mouse and B220 Silent Mouse.our low end products.
Keyboards & Combos
Our Keyboards & Combos category comprises PC keyboards living room keyboards and keyboard/mice combo products.
During fiscal year 2020,2023, Keyboards & Combos sales increased 7%decreased 14%, compared to fiscal year 2019. The increase was2022, primarily driven by an increasethe decrease in sales of our cordless combos and corded PC keyboards, and wireless keyboard/mice combos, partially offset by a declineparticularly in sales of our living room keyboardlow end products.
PC Webcams
Our PC Webcams category comprises PC-based webcams targeted primarily at consumers.consumers, including streaming cameras.
During fiscal year 2020,2023, PC Webcams sales increased 7%decreased 44%, compared to fiscal year 2019. The increase was primarily driven by an increase in sales of our Webcam C260, Logitech StreamCam launched in AMR and EMEA in the fourth quarter of fiscal year 2020, and C270i iPTV CAM, partially offset by a decline in sales of our Webcam C170.
Tablet & Other Accessories
Our Tablet & Other Accessories category primarily comprises tablet keyboards for tablets.and styluses.
During fiscal year 2020,2023, Tablet & Other Accessories sales increased 5%decreased 18%, compared to fiscal year 2019. The increase was2022, primarily driven by the introductiondecrease in sales of most of our Slim Folio Pro for the 11" and 12.9" iPad Pro introducedproducts, partially offset by increases in the first quarter of fiscal year 2020 and sales of our Rugged Combo and Slim Folio for a newer generation of iPads introduced in the third quarter of fiscal year 2020, partially offset by a decline in sales of our Slim Folio for the 2017/2018 iPad and Slim Combos Keyboard cases for 10.5" iPad.
Gaming market:
Gaming
Our Gaming category comprises gaming mice, keyboards, headsets, gamepads, steering wheels, simulation controllers, console gaming headsets, console gaming controllers, and Streamlabs services.
During fiscal year 2020,2023, Gaming sales increased 6%decreased 17%, compared to fiscal year 2019. The increase was2022, primarily driven by an increasethe decrease in sales of our gaming mice, gaming keyboards, console gaming controllers, and gaming steering wheels, and sales from Streamlabs services as a result of our business combination (see Note 3 to the consolidated financial statements). The growth was partially offset by a decline in sales of our gaming headsets and console gaming headsets.
Logitech International S.A. | Fiscal 2023 Form 10-K | 41
Table of our core PC gaming products, and ASTRO console gaming headsets, which benefited from the growing gaming market, growth in eSports, expansions in new channels and regions, and expansion in product portfolios. The increase for fiscal year 2019 was also driven by the fact that the acquisition of ASTRO closed on August 11, 2017, in the middle of our fiscal year 2018 second quarter, resulting in a partial comparative period impact. The growth was partially offset by a slight decline in our simulation products.Contents
Video Collaboration market:
Video Collaboration
Our Video Collaboration category includes Logitech’s ConferenceCams,conference room cameras, which combine affordable enterprise-quality audio and high definition (HD) 1080p4K video to bring video conferencing to businesses of any size.size, as well as webcams and headsets that turn any desktop into an instant collaboration space.
During fiscal year 2020,2023, Video Collaboration sales increased 41%decreased 11%, compared to fiscal year 2019. The increase was2022, primarily due to increases in sales of our Rally Ultra-HD PTZ Conference Camera, our Tap Touch Controller introduced in the first quarter of fiscal year 2020 and our MeetUp video conference camera, partially offset by a decrease in sales of older generation products.
Music market:
Mobile Speakers
Our Mobile Speakers category is made up entirely of Bluetooth wireless speakers.
During fiscal year 2020,2023, Mobile Speakers salessales decreased 4%25%, compared to fiscal year 2019. The decrease was2022, primarily due to a declinedecrease in sales of most of our WONDERBOOM, BOOM 2, and MEGABLAST,Mobile Speaker sub-categories, partially offset by sales from the introduction of our WONDERBOOM 2 in the first quarter of fiscal year 2020and an increase in sales of our BOOM 3.
Audio & Wearables
Our Audio & Wearables category comprises PC speakers, PC headsets, in-ear headphones, premium wireless audio wearablesearbuds and studio-quality microphonesBlue Microphones for professionals and consumers.
During fiscal year 2020,2023, Audio & Wearables sales decreased 1%32%, compared to fiscal year 2019. The decrease was2022, primarily driven by declines in sales of our PC Speakers and Jaybird traditional wireless products, partially offset by the growth in sales of our Blue Microphones products, as a result of our business combination in the second quarter of fiscal year 2019, and Jaybird True wireless products.
Gross Profit
Gross profit for fiscal years 2020, 20192023 and 20182022 was as follows (Dollars in thousands):
| Years Ended March 31, | Years Ended March 31, | |||||||||||||||||||||||||||||||
| 2020 | 2019 | 2018 | 2023 | 2022 | Change | |||||||||||||||||||||||||||
| Net sales | $ | 2,975,851 | $ | 2,788,322 | $ | 2,566,863 | Net sales | $ | 4,538,818 | $ | 5,481,101 | (17.2) | % | |||||||||||||||||||
| Gross profit | $ | 1,122,381 | $ | 1,037,011 | $ | 909,241 | Gross profit | $ | 1,719,515 | $ | 2,263,006 | (24.0) | % | |||||||||||||||||||
| Gross margin | 37.7 | % | 37.2 | % | 35.4 | % | Gross margin | 37.9 | % | 41.3 | % | |||||||||||||||||||||
Gross profit consists of sales, less cost of goods sold (which includes materials, direct labor and related overhead costs, costs of manufacturing facilities, royalties, costs of purchasing components from outside suppliers, distribution costs, warranty costs, customer support costs, shipping and handling costs, outside processing costs and write-down of inventories), and amortization of intangible assets and purchase accounting effect on inventory.assets.
Gross margin increaseddecreased by 50340 basis points to 37.7%37.9% during fiscal year 2020,2023, compared to fiscal year 2019.2022. The increasedecrease in gross margin was primarily driven by favorable product mixdue to inflationary pressure on costs and benefits unfavorable impacts from cost savings and operational efficiencies,changes in currency exchange rates, partially offset by unfavorable currency exchange rates, an increase in U.S.-China tariffs and COVID-19 related costs primarily due to disruptions and higher costsa reduction in our manufacturing, supply chain and logistics operations and outsourced services.
Logitech International S.A. | Fiscal 2023 Form 10-K | 42
Operating Expenses
Operating expenses for fiscal years 2020, 20192023 and 20182022 were as follows (Dollars in thousands):
| Years Ended March 31, | ||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||
| Marketing and selling | $ | 809,182 | $ | 1,025,899 | ||||||||||||||||
| % of sales | 17.8 | % | 18.7 | % | ||||||||||||||||
| Research and development | 280,796 | 291,844 | ||||||||||||||||||
| % of sales | 6.2 | % | 5.3 | % | ||||||||||||||||
| General and administrative | 124,652 | 148,648 | ||||||||||||||||||
| % of sales | 2.7 | % | 2.7 | % | ||||||||||||||||
| Amortization of intangible assets and acquisition-related costs | 11,843 | 16,947 | ||||||||||||||||||
| % of sales | 0.3 | % | 0.3 | % | ||||||||||||||||
| Impairment of intangible assets | — | 7,000 | ||||||||||||||||||
| % of sales | N/A | 0.1 | % | |||||||||||||||||
| Change in fair value of contingent consideration for business acquisition | — | (3,509) | ||||||||||||||||||
| % of sales | N/A | (0.1) | % | |||||||||||||||||
| Restructuring charges, net | 34,573 | 2,165 | ||||||||||||||||||
| % of sales | 0.8 | % | — | % | ||||||||||||||||
| Total operating expenses | $ | 1,261,046 | $ | 1,488,994 | ||||||||||||||||
| % of sales | 27.8 | % | 27.2 | % | ||||||||||||||||
| Years Ended March 31, | ||||||||||||
| 2020 | 2019 | 2018 | ||||||||||
| Marketing and selling | $ | 533,324 | $ | 488,263 | $ | 435,489 | ||||||
| % of sales | 17.9 | % | 17.5 | % | 17.0 | % | ||||||
| Research and development | 177,593 | 161,230 | 143,760 | |||||||||
| % of sales | 6.0 | % | 5.8 | % | 5.6 | % | ||||||
| General and administrative | 94,015 | 98,732 | 96,353 | |||||||||
| % of sales | 3.2 | % | 3.5 | % | 3.8 | % | ||||||
| Amortization of intangible assets and acquisition-related costs | 17,563 | 14,290 | 8,930 | |||||||||
| % of sales | 0.6 | % | 0.5 | % | 0.3 | % | ||||||
| Change in fair value of contingent consideration for business acquisition | 23,247 | — | (4,908 | ) | ||||||||
| % of sales | 0.8 | % | — | % | (0.2 | )% | ||||||
| Restructuring charges (credits), net | 144 | 11,302 | (116 | ) | ||||||||
| % of sales | — | % | 0.4 | % | — | % | ||||||
| Total operating expenses | $ | 845,886 | $ | 773,817 | $ | 679,508 | ||||||
| % of sales | 28.4 | % | 27.8 | % | 26.5 | % | ||||||
The increasedecrease in total operating expenses during fiscal year 2020,2023, compared to fiscal year 2019,2022, was mainly due to increasesdecreases in marketing and selling expenses, research and development expenses, fair value of contingent consideration recorded, and amortization of intangible assets from the business acquisitions,partially offset by decreasesan increase in restructuring charges and general and administrative expenses.
Marketing and Selling
Marketing and selling expenses consist of personnel and related overhead costs, corporate and product marketing, promotions, advertising, trade shows, technical support for customer experiences and facilities costs.
During fiscal year 2020,2023, marketing and selling expenses increased $45.1 decreased $216.7 million, compared to fiscal year 2019. The increase was 2022, primarily driven by an increase of $36.6 million in personnel-related costs due to increased headcount, partially resulting from the Blue Microphones and Streamlabs acquisitions and increased performance-based variable compensation and an increase of $7.2 millionour reduction in third-party costs.
Research and Development
Research and development expenses consist of personnel and related overhead costs for contractors and outside consultants, supplies and materials, equipment depreciation and facilities costs, all associated with the design and development of new products and enhancements of existing products.
During fiscal year 2020,2023, research and development expenses increased $16.4expenses decreased $11.0 million, compared to fiscal year 2019. The increases were2022, primarily driven by an increase of $11.1 million inlower personnel-related costs, due to
General and Administrative
General and administrative expenses consist primarily of personnel and related overhead, information technology, and facilities costs for the infrastructure functions such as finance, information systems, executives, human resources and legal.
During fiscal year 2020,2023, general and administrative expenses decreased $4.7$24.0 million, compared to fiscal year 2019. The decrease was2022, primarily driven by a decreaselower personnel-related costs.
Logitech International S.A. | Fiscal 2023 Form 10-K | 43
Table of $8.8 million in personnel-related costs, partially offset by an increase of $2.4 million in infrastructure costs.Contents
Amortization of IntangiblesIntangible Assets and Acquisition-Related Costs
Amortization of intangiblesintangible assets included in operating expense and acquisition-related costs during fiscal years 2020, 20192023 and 20182022 were as follows (in thousands):
| Years Ended March 31, | Years Ended March 31, | |||||||||||||||||||||||||||||||
| 2020 | 2019 | 2018 | 2023 | 2022 | ||||||||||||||||||||||||||||
| Amortization of intangible assets | $ | 16,073 | $ | 12,594 | $ | 7,518 | Amortization of intangible assets | $ | 11,542 | $ | 16,156 | |||||||||||||||||||||
| Acquisition-related costs | 1,490 | 1,696 | 1,412 | Acquisition-related costs | 301 | 791 | ||||||||||||||||||||||||||
| Total | $ | 17,563 | $ | 14,290 | $ | 8,930 | Total | $ | 11,843 | $ | 16,947 | |||||||||||||||||||||
Amortization of intangible assets consists of amortization of acquired intangible assets, including customer relationships and trademarks and trade names. Acquisition-related costs include legal expense, due diligence costs, and other professional costs incurred for business acquisitions.
The increasedecrease in amortization of intangible assets and acquisition-related costs from fiscal year 20192022 to 20202023 was primarily driven by thedue to certain acquired intangible assets becoming fully amortized and the write-off of Jaybird intangible assets in fiscal year 2022.
Impairment of Intangible Assets
During fiscal year 2022, we recognized a pre-tax impairment charge of $7.0 million, related to the intangibles acquired throughas part of the Blue MicrophonesJaybird acquisition indue to our decision to discontinue Jaybird-branded products.
Restructuring Charges (Credits), Net
During the second quarter of fiscal year 20192023, we initiated a restructuring plan to realign our business group and engineering structure with our go-to-market strategy to more effectively compete within the Streamlabs Acquisition inenterprise market and to better serve end-users. During the fourth quarter of fiscal year 2023, we undertook further actions to remove organization layers as well as streamline our marketing organization to increase efficiency. As a result, we recorded pre-tax restructuring charges totaling $34.6 million primarily related to employee severance and other termination benefits. We expect to substantially complete these restructuring activities within the next twelve months.
The restructuring charges of $2.2 million for fiscal year 2022, were recorded as a result of our decision to exit Jaybird-branded products during the third quarter of fiscal year 2020. The increase in amortization of intangible assets from fiscal year 2018 to 2019 was primarily due to the Blue Microphones Acquisition in fiscal year 2019 and the ASTRO Acquisition in fiscal year 2018.
| Restructuring - Continuing Operations | ||||||||||||
| Termination Benefits | Lease Exit Costs | Total | ||||||||||
| Accrual balance at March 31, 2017 | $ | 735 | $ | — | $ | 735 | ||||||
| Credits, net | (116 | ) | — | (116 | ) | |||||||
| Cash payments | (619 | ) | — | (619 | ) | |||||||
| Accrual balance at March 31, 2018 | — | — | — | |||||||||
| Charges, net | 11,302 | — | 11,302 | |||||||||
| Cash payments | (6,913 | ) | — | (6,913 | ) | |||||||
| Accrual balance at March 31, 2019 | 4,389 | — | 4,389 | |||||||||
| Charges, net | 144 | — | 144 | |||||||||
| Cash payments | (3,852 | ) | — | (3,852 | ) | |||||||
| Accrual balance at March 31, 2020 | $ | 681 | $ | — | $ | 681 | ||||||
See Note 16 to our consolidated financial statements for the year ended March 31, 2018 include activities from our restructuring plan implemented in fiscal year 2016.additional information.
Interest Income
Interest income for fiscal years 2020, 20192023 and 20182022 was as follows (in thousands):
| Years Ended March 31, | ||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||
| Interest Income | $ | 18,331 | $ | 1,246 | ||||||||||||||||
| Years Ended March 31, | ||||||||||||
| 2020 | 2019 | 2018 | ||||||||||
| Interest Income | $ | 9,619 | $ | 8,375 | $ | 4,969 | ||||||
We invest in highly liquid instruments with an original maturity of three months or less at the date of purchase, which are classified as cash equivalents. The increasesincrease in interest income for fiscal years 2020 and 2019year 2023, compared to the prior periods were both due to higher yield earned on those investments. fiscal year 2022, was primarily driven by the increase in interest rates.
Logitech International S.A. | Fiscal 2023 Form 10-K | 44
Other Income (Expense), Net
Other income and expense(expense), net for fiscal years 2020, 20192023 and 20182022 was as follows (in thousands):
| Years Ended March 31, | ||||||||||||
| 2020 | 2019 | 2018 | ||||||||||
| Investment income (loss) related to the deferred compensation plan | $ | (831 | ) | $ | 664 | $ | 1,386 | |||||
| Currency exchange loss, net | (909 | ) | (3,608 | ) | (4,613 | ) | ||||||
| Gain on investment, net | 39,011 | 816 | 669 | |||||||||
| Other | 941 | 1,692 | 121 | |||||||||
| Total | $ | 38,212 | $ | (436 | ) | $ | (2,437 | ) | ||||
| Years Ended March 31, | ||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||
| Investment gain (loss) related to the deferred compensation plan | $ | (1,961) | $ | 1,231 | ||||||||||||||||
| Currency exchange loss, net | (7,337) | (4,604) | ||||||||||||||||||
| Loss on investments, net | (14,073) | (1,683) | ||||||||||||||||||
| Non-service cost net pension income (expense) and other | 10,093 | 5,616 | ||||||||||||||||||
| Total | $ | (13,278) | $ | 560 | ||||||||||||||||
Investment incomegain (loss) related to the deferred compensation plan for fiscal years 2020, 20192023 and 20182022 represents earnings, gains, and losses on trading investmentsmarketable securities related to a deferred compensation plan offered by one of our subsidiaries. The decrease in investment income for fiscal year 2023 compared to fiscal year 2022 primarily relates to the change in market performance of the underlying securities.
Currency exchange loss, net, relates to balances denominated in currencies other than the functional currency in our subsidiaries, as well as to the sale of currencies, and to gains or losses recognized on currency exchange forward contracts. We do not speculate in currency positions, but we are alert to opportunities to maximize currency exchange gains and minimize currency exchange losses. The loss for fiscal year 2023 was primarily related to the weakening of the Brazilian Real and Australian Dollar against U.S. Dollar. The loss for fiscal year 2022 was primarily related to the strengthening of the Chinese Renminbi against the U.S. Dollar.
Loss on investments, net, represents the realized gain on sales of investment, andincludes unrealized gain (loss) from the fair value change of investment, gain (loss) on the available-for-sale securitiesequity-method investments and equity-methodimpairment of investments during the periods presented. On March 2, 2020, we soldpresented, as applicable. The loss on investments, net for fiscal year 2023 was primarily due to the impairment charge related to one of our $5.5 million investment in a privately held company for a total proceedsequity method investments, partially offset by the unrealized gain related to one of $45.3 million consisting of (i) $3.0 million in cash, of which $0.8 million is held in escrow, (ii) a 6% subordinated note with a principal amount of $8.4 million due in 5 years together with the interest, at aour equity investments without readily determinable fair value of $7.4 million,resulting from observable price changes. See Note 9 to our consolidated financial statements for additional information.
Non-service cost net pension income (expense) and (iii) 33.9 million Series A preferred units and 33.9 million Series B common unitsother increased in Marlin-SL Topco, LP ("Marlin"), representing an ownership interest of approximately 11.8%, with a face value of $33.9 million and fair value of $35.0 million, respectively. As a result, we recognized a gain of $39.8 million in the fourth quarter of fiscal year 2020.
Provision for (Benefit from) Income Taxes
The provision for (benefit from) income taxes and the effective income tax raterates for fiscal years 2020, 20192023 and 20182022 were as follows (Dollars in thousands):
| Years Ended March 31, | ||||||||||||||||||||||||||||||||
| Years Ended March 31, | 2023 | 2022 | ||||||||||||||||||||||||||||||
| 2020 | 2019 | 2018 | ||||||||||||||||||||||||||||||
| Provision for (benefit from) income taxes | $ | (125,397 | ) | $ | 13,560 | $ | 23,723 | |||||||||||||||||||||||||
| Provision for income taxes | Provision for income taxes | $ | 98,947 | $ | 131,305 | |||||||||||||||||||||||||||
| Effective income tax rate | (38.7 | )% | 5.0 | % | 10.2 | % | Effective income tax rate | 21.3 | % | 16.9 | % | |||||||||||||||||||||
The change in the effective income tax rate between fiscal years 20202023 and 20192022 was primarily due to the mix of income and losses in the various tax jurisdictions in which we operate and the income tax accounting impact from the enactment of TRAF in the canton of Vaud in Switzerland on March 10, 2020 to take effect as of January 1, 2020. We have benefited from a longstanding tax ruling from the canton of Vaud through December 31, 2019. We reached an agreement with the Vaud Tax Administration that would allow for a tax step-up of goodwill to be amortized over ten years beginning on January 1, 2020 as a transition measure. We recorded an income tax benefit of $151.7 million, net of unrecognized tax benefits to account for the book and tax basis difference of the step-up upon enactment. The deferred income tax benefit from other temporary differences resulting from the Swiss tax reform, net of three-month amortization of the tax step-up amounted to $1.5 million. The aggregate deferred income tax impact in fiscal year 2020 as a result of the enactment of TRAF was $153.2 million.operate.
As of March 31, 20202023 and 2019,2022, the total amountsamount of unrecognized tax benefits due to uncertain tax positions were $140.8was $186.8 million and $76.5$176.0 million, respectively, all of which would affect the effective income tax ratesrate if recognized.
Logitech International S.A. | Fiscal 2023 Form 10-K | 45
As of March 31, 20202023 and 2019,2022, we had $40.8$106.4 million and $36.4$83.4 million, respectively, in non-current income taxes payable, including interest and penalties, related to our income tax liability for uncertain tax positions. We recognized $2.0 million, $0.6$2.7 million and $0.6$1.5 million, in interest and penalties related to unrecognized tax positions in income tax expense during fiscal years 2020, 20192023 and 2018,2022, respectively. As of March 31, 20202023 and 2019,2022, we had $4.5$6.1 million and $2.5$3.6 million, respectively, of accrued interest and penalties related to uncertain tax positions.
We file Swiss and foreign tax returns. We received final tax assessments in Switzerland through fiscal year 2017.2019. For other material foreign jurisdictions such as the United States and China, we are generally not subject to tax examinations for years prior to fiscal year 2017.2020 and calendar year 2020, respectively. In the United States, the federal and state tax agencies have the authority to examine periods prior to fiscal year 2020, to the extent allowed by law, where tax attributes were generated, carried forward, and being utilized in subsequent years. We are under examination and have received assessment notices in foreign tax jurisdictions. If the examinations are resolved unfavorably, there is a possibility that they may have a material negative impact on our results of operations.
Pursuant to the Tax Cuts and Jobs Act of 2017, research and development expenses are required to be capitalized and amortized over five years for U.S. tax purposes if the research and development activities are performed in the U.S. effective for tax year beginning after December 31, 2021. The provision was effective for us beginning in fiscal year 2023. However, the provision which delays the deductibility of research and development expenses is not applicable to our existing research and development activities in the U.S. We evaluate our business activities regularly should the provision become applicable.
Liquidity and Capital Resources
Cash Balances, Available Borrowings, and Capital Resources
As of March 31, 2020,2023, we had cash and cash equivalents of $715.6$1,149.0 million, compared with $604.5$1,328.7 million as of March 31, 2019.2022. Our cash and cash equivalents consist of bank demand deposits and short-term time deposits, of which 75%which 78% is held in Switzerland and 11%12% is held in China (including Hong Kong). We do not expect to incur any material adverse tax impact except for what has already been recognized, or to be significantly inhibited by any country in which we do business from the repatriation of funds to Switzerland, our home domicile. country of domicile.
As of MarchMarch 31, 2020,2023, our working capital was $700.3$1,555.1 million, compared with working capital of $632.6to $1,651.8 million as of March 31, 2019.2022. The increase in working capital over fiscal year 2019decrease was primarily due to higherdriven by lower inventories, lower cash balances resulting from share repurchases and payments of cash dividends, and cash equivalents, higherlower accounts receivable, net, and lower balance of accounts payable, partially offset by lower inventoriesdecreases in accounts payable and higher accrued and other liabilities.
We had several uncommitted, unsecured bank lines of credit aggregating to $81.4$181.3 million as of March 31, 2020.2023. There are no financial covenants under these lines of credit with which we must comply. As of March 31, 2020,2023, we had outstanding bank guarantees of $20.7$13.6 million under these lines of credit.
Logitech International S.A. | Fiscal 2023 Form 10-K | 46
The following table presents selected financial information and statistics as of March 31, 2020, 20192023 and 20182022 (Dollars in thousands):
| March 31, | ||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||
| Accounts receivable, net | $ | 630,382 | $ | 675,604 | ||||||||||||||||
| Accounts payable | $ | 406,968 | $ | 636,306 | ||||||||||||||||
| Inventories | $ | 682,893 | $ | 933,124 | ||||||||||||||||
Days sales in accounts receivable (DSO)(Days)(1) | 59 | 49 | ||||||||||||||||||
Days accounts payable outstanding (DPO) (Days)(2) | 59 | 78 | ||||||||||||||||||
Inventory turnover (ITO)(x)(3) | 3.6 | 3.2 | ||||||||||||||||||
| March 31, | ||||||||||||
| 2020 | 2019 | 2018 | ||||||||||
| Accounts receivable, net | $ | 394,743 | $ | 383,309 | $ | 214,885 | ||||||
| Accounts payable | $ | 259,120 | $ | 283,922 | $ | 293,988 | ||||||
| Inventories | $ | 229,249 | $ | 293,495 | $ | 259,906 | ||||||
Days sales in accounts receivable (DSO)(Days)(1) | 50 | 55 | 33 | |||||||||
Days accounts payable outstanding (DPO) (Days)(2) | 54 | 65 | 70 | |||||||||
Inventory turnover (ITO)(x)(3) | 7.5 | 5.3 | 5.9 | |||||||||
(3)ITO is determined using ending inventories and annualized cost of goods sold (based on the most recent quarterly cost of goods sold).
DSO as of March 31, 2020 decreased2023 increased by 510 days to 5059 days, as compared to 5549 days as of March 31, 2019,2022, primarily due to lower revenues resulting from softened demand, partially offset by timing of customer payments and sales linearity. DSO as of March 31, 2019 increased by 22 days to 55 days, as compared to 33 days as of March 31, 2018. The adoption of Topic 606 negatively impacted our DSO forwithin the year ended March 31, 2019 by 18 days, mainly as a result of changes in the balance sheet presentation of certain reserve balances previously shown net within accounts receivable which are now presented as accrued and other current liabilities. The adoption of Topic 606 did not have an impact over the total cash flows from operating, investing or financing activities. Timing of sales also increased DSO by four days as of March 31, 2019 relative to the corresponding prior year period.quarter.
DPO as of March 31, 20202023 decreased 1119 days, compared to March 31, 2019,2022, primarily due to lessa reduction in inventory replenishment during the fourth quarter of fiscal year 2020 due to COVID-19 impactpurchases and an increase in cost of goods sold due to higher sales growth. DPO as of March 31, 2019 decreased five days, compared to March 31, 2018, primarily due to the timing of purchases.lower marketing spend, partially offset by softened demand.
ITO as of March 31, 2020 was higher2023 increased 0.4, compared to March 31, 2019,2022, primarily due to higher sales growth anda lower replenishment in the fourth quarter of fiscal year 2020 due to COVID-19 impact. ITOinventory balance as of March 31, 2019 was lower compared to March 31, 2018, due to higher inventory related to new product introductions and inventory from the Blue Microphones Acquisition.2023, partially offset by softened demand.
If we are not successful in launching and phasing in our new products, launched during the current fiscal year,or market competition increases, or we are not able to sell the new products at the prices planned, it could have a material impact on our revenue,sales, gross profit margin, operating results including operating cash flow, and inventory turnover in the future.
The following table summarizes our consolidated statement of cash flows for the year ended March 31, 2023 (Dollars in thousands):
| Year ended March 31, 2023 | ||||||||||||||
| Net cash provided by operating activities | $ | 534,010 | ||||||||||||
| Net cash used in investing activities | (105,730) | |||||||||||||
| Net cash used in financing activities | (583,353) | |||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | (24,620) | |||||||||||||
| Net decrease in cash and cash equivalents | $ | (179,693) | ||||||||||||
Our expenditures for property, plant and equipment during fiscal year 20202023 were primarily for tooling and equipment, building improvements, and computer hardware and software. Our expenditures for property, plant and equipment during fiscal years 2019 and 2018 were primarily for tooling and equipment, computer hardware and software and leasehold improvements. Our expenditures for property, plant and equipment increased during
For fiscal year 2020, compared to fiscal year 2019, primarily due to higher computer and software and leasehold improvements. Our expenditures for property, plant and equipment decreased during fiscal year 2019, compared to fiscal year 2018, primarily due to a lower amount2023, net cash used in financing activities was $583.4 million, resulting from repurchases of tooling purchases.
Logitech International S.A. | Fiscal 2023 Form 10-K | 47
net share settlements of cash acquired, during fiscal year 2019 were primarily for the Blue Microphones Acquisition (refer to "Note 3 - Business Acquisitions" to the consolidated financial statements). Our payments for acquisitions, net restricted stock units of cash acquired, during fiscal year 2018, were primarily for the ASTRO Acquisition.$29.2 million, partially offset by proceeds from exercise of stock options and purchase rights of $28.8 million.
During fiscal year 2020,2023, there was a $7.1$24.6 million loss from effect of currency exchange rate changeseffect on cash and cash equivalents, compared to a loss of $10.1 million from effect of currency exchange rate changes during fiscal year 2019, and a $4.7 million gain of currency translation exchange rate effect during fiscal year 2018. The loss from effect of currency rate changes during fiscal year 2020 were primarily due to the weakeningexchange rate fluctuations of the Euro, Brazilian realSwiss Franc, Chinese Renminbi, and Australian dollarDollar versus the U.S. Dollar by 3%, 25%, and 14%, respectively. The loss fromtiming of our cash transactions over the effect of currency exchange rate changes during fiscal year 2019 were primarily due to the weakening of Euro and Chinese Renminbi versus the U.S. Dollar by 9% and 7%, respectively.period.
Cash Outlook
Our principal sources of liquidity are our cash and cash equivalents, cash flow generated from operations and, to a much lesser extent, capital markets and borrowings. Our future working capital requirements and capital expenditures may increase to support investments in product innovations and growth opportunities or to acquire or invest in complementary businesses, products, services, and technologies. The future impact of COVID-19 cannot be predicted with certaintyMarket volatility driven by the current macroeconomic and geopolitical environment may increase our costs of capital and otherwise adversely affect our business, results of operations, financial conditionscondition and liquidity.
In May 2020,2023, the BoardBoard of Directors recommended that we pay cash dividends for fiscal year 20202023 of CHF 134.01.06 per share (approximately $1.16 per share based on the exchange rate on March 31, 2023). Based on our shares outstanding, net of treasury shares, as of March 31, 2023 (159,343,273 shares), this would result in an aggregate gross dividend of approximately CHF 168.9 million ($138.7(approximately $184.2 million based on the exchange rate on March 31, 2020)2023). In fiscal year 2020,2023, we paid a cash dividend of CHF 121.80.96 per share, or CHF 156.1 million (U.S. Dollar amount of $124.2$158.7 million based on the exchange rate on the date of payment) out of fiscal year 2022 retained earnings. In fiscal year 2022, we paid a cash dividend of CHF 0.87 per share, or CHF 147.0 million (U.S. Dollar amount of $159.4 million) out of fiscal year 20192021 retained earnings. In fiscal year 2019,2021, we paid a cash dividend of CHF 110.70.79 per share, or CHF 134.0 million (U.S. Dollar amount of $114.0$146.7 million) out of fiscal year 20182020 retained earnings. In fiscal year 2018, we paid a cash dividend of CHF 100.0 million (U.S. Dollar amount of $104.2 million) out of fiscal year 2017 retained earnings.
In May 2020, our Board of Directors approved a newthe 2020 share buybackrepurchase program, which authorizesauthorized us to invest up to $250.0 million to purchase our own shares, followingshares. In April 2021, our Board of Directors approved an increase of $750.0 million to the expiration date2020 share repurchase program, to an aggregate amount of $1.0 billion. The Swiss Takeover Board approved this increase and it became effective on May 21, 2021. In July 2022, our Board of Directors approved an increase of $500 million to the 20172020 share buybackrepurchase program, to an aggregate amount of up to $1.5 billion to purchase up to 17.3 million of Logitech shares. The Swiss Takeover Board approved this increase and it became effective on August 19, 2022. As of March 31, 2023, $505.8 million was available for repurchase under the 2020 repurchase program.
Although we enter into trading plans for systematic repurchases (e.g., 10b5-1 trading plans) from time to time, our share buybackrepurchase program provides us with the opportunity to make opportunistic repurchases during periods of favorable market conditions and is expected to remain in effect for a period of three years.years through July 27, 2023. Shares may be repurchased from time to time on the open market, through block trades or otherwise. Opportunistic purchases may be started or stopped at any time without prior notice depending on market conditions and other factors.
For over ten years, we have generated positive cash flows from our operating activities, including cash from operations of $425.0 million, $305.2 million and $346.3534.0 million and $298.3 million during fiscal years 2020, 2019,2023 and 2018,2022, respectively. If we do not generate sufficient operating cash flows to support our operations and future planned cash requirements, our operations could be harmed and our access to credit facilities could be restricted or eliminated.
However, we believe that the trend of our historical cash flow generation, our projections of future operations and our available cash balances will provide sufficient liquidity to fund our operations for at least the next 12 months.
Our other contractual obligations and commitments that require cash are described in the following sections.
Contractual Obligations and Commitments
| Payments Due by Period | ||||||||||||||||||||
| March 31, 2020 | <1 year | 1-3 years | 3-5 years | >5 years | ||||||||||||||||
| Inventory purchase commitments | $ | 296,539 | $ | 296,539 | $ | — | $ | — | $ | — | ||||||||||
| Capital purchase commitments | 15,064 | 15,064 | — | — | — | |||||||||||||||
| Expected contribution to employee benefit plans | 5,760 | 5,760 | * | * | * | |||||||||||||||
| Operating leases obligations | 32,367 | 11,701 | 15,298 | 2,507 | 2,861 | |||||||||||||||
| Total | $ | 349,730 | $ | 329,064 | $ | 15,298 | $ | 2,507 | $ | 2,861 | ||||||||||
Purchase Commitments
As of March 31, 2020,2023, we havehad non-cancelable purchase commitments of $296.5$368.1 million for inventory purchases made in the normal course of business from original design manufacturers, contract manufacturers and other suppliers, the majority of which are expected to be fulfilled duringwithin the first two quarters of fiscal year 2021.next 12 months. We recorded a liability for firm, non-cancelable, and unhedged inventory purchase commitments in excess of anticipated demand or net realizable value consistent with our valuation of excess and obsolete inventory. As of March 31, 2020,2023, the liability for
Logitech International S.A. | Fiscal 2023 Form 10-K | 48
these purchase commitments was $9.6$46.6 million and is recorded in accrued and other current liabilities and is not included in the preceding table. consolidated balance sheet.
We have firm purchase commitments of $15.1$26.3 million for capital expenditures, primarily related to commitments for tooling computer hardware and leasehold improvements.equipment for new and existing products and commitments to vendors to fit out and furnish office facilities. We expect to continue making capital expenditures in the future to support product development activities and ongoing and expanded operations. Although open purchase commitments are considered enforceable and legally binding, the terms generally allow us the option to reschedule andor adjust our requirements based on business needs prior to delivery of goods.goods or performance of services.
Operating Leases Obligation
We lease facilities under operating leases, certain of which require us to pay property taxes, insurance and maintenance costs. Operating leases for facilities are generally renewable at our option and usually include escalation clauses linked to inflation.inflation. The remaining terms of our non-cancelable operating leases expire in various years through 2031.through 2033. See "NoteNote 17 - Leases"Leases in our Notes to the consolidated financial statements included in this report for more information on leases.
Income Taxes Payable
As of March 31, 2020,2023, we had $40.8$106.4 million in non-current income taxes payable, including interest and penalties, related to our income tax liability for uncertain tax positions. At this time, we are unable to make a reasonably reliable estimate of the timing of payments in individual years in connection with these tax liabilities; therefore, such amounts are not included in the contractual obligation table above.liabilities.
Indemnifications
We indemnify certain of our suppliers and customers for losses arising from matters such as intellectual property disputes and product safety defects, subject to certain restrictions. The scope of these indemnities varies, but in some instances includes indemnification for damages and expenses, including reasonable attorneys'attorneys’ fees. As of March 31, 2020,2023, no amountsmaterial amounts have been accrued for indemnification provisions. We do not believe, based on historical experience and information currently available, that it is probable that any material amounts will be required to be paid under our indemnification arrangements.
We also indemnify our current and former directors and certain of our current and former officers. Certain costs incurred for providing such indemnification may be recoverable under various insurance policies. We are unable to reasonably estimate the maximum amount that could be payable under these arrangements because these exposures are not capped, the obligations are conditional in nature, and the facts and circumstances involved in any situation that might arise are variable.
Logitech International S.A. | Fiscal 2023 Form 10-K | 49
Table of operations, liquidity, capital expenditures or capital resources that are material to investors.Contents
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
Market risk represents the potential for loss due to adverse changes in the fair value of financial instruments. As a company with global concern,operations, we face exposure to adverse movements in currency exchange rates and interest rates. These exposures may change over time as business practices evolve and could have a material adverse impact on our financial results.
Currency Exchange Rates
We report our results in U.S. Dollars. Changes in currency exchange rates compared to the U.S. Dollar can have a material impact on our results when the financial statements of our non-U.S. subsidiaries are translated into U.S. Dollars. The functional currency of our operations is primarily the U.S. Dollar. Certain operations use the Swiss Franc or the local currency of the country as their functional currencies. Accordingly, unrealized currency gains or losses resulting from the translation of net assets or liabilities denominated in other currencies to the U.S. Dollar are accumulated in the cumulative translation adjustment component of accumulated other comprehensive income (loss) ("AOCI") in shareholders' equity.
We are exposed to currency exchange rate risk as we transact business in multiple currencies, including exposure related to anticipated sales, anticipated purchases and assets and liabilities denominated in currencies other than the U.S. Dollar. We transact business in overapproximately 30 currencies worldwide, of which the most significant to operations are the Euro, Chinese Renminbi, Japanese Yen, Australian Dollar, Taiwanese Dollar, British Pound, Brazilian Real, Canadian Dollar, Japanese YenPound Sterling and Mexican Peso.New Taiwan Dollar. For the year ended March 31, 2020,2023, approximately 50%51% of our sales were in non-U.S. denominated currencies, with 26%23% of our sales denominated in Euro. The mix of our costcosts of goods sold and operating expenses by currency are significantly different from the mix of our sales, with a larger portion denominated in U.S. Dollar and less denominated in Euro and other currencies. A strengthening U.S. Dollar has a more unfavorable impact on our sales thancompared to the favorable impact on our cost of goods sold and operating expenses, resulting in an adverse impact on our operating results.
We enter into currency forward and swap contracts to reduce the short-term effects of currency fluctuations on certain receivables or payables denominated in currencies other than the functional currencies of our subsidiaries. These forward contracts generally mature within approximately one month. The gains or losses on these contracts are recognized in earnings based on the changes in fair value.
If an adverse 10% foreign currency exchange rate change had been applied to total monetary assets and liabilities denominated in currencies other than the functional currencies at the balance sheet dates, it would have resulted in an adverse effect on income before income taxes of approximately $11.8$17.0 million and $7.8$24.4 million as of March 31, 20202023 and 2019,2022, respectively. The adverse effect as of March 31, 20202023 and 20192022 is after consideration of the offsetting effect of approximately $5.2$8.1 million and $4.2$15.9 million, respectively, from open foreign exchange contracts in place as of March 31, 2020 and 2019.
We enter intointo cash flow hedgehedge contracts to protectprotect against exchange rate exposureexposure of forecastedforecasted inventory purchases. These hedging contracts mature within approximately four months. Gains and losses in the fair value of the effective portion of the hedges are deferred as a component of accumulated other comprehensive lossAOCI until the hedged inventory purchases are sold, at which time the gains or losses are reclassified to cost of goods sold.
If the U.S. dollar had weakened by 10% as of March 31, 2020,, the amount recorded in accumulated other comprehensive income (AOCI)AOCI related to our foreign exchange contracts before tax effect as of March 31, 2023 and 2022 would have been approximately $4.8$7.3 million and $4.1$12.5 million lower, as of March 31, 2020 and 2019, respectively. The change in the fair value recorded in AOCI would be expected to offset a corresponding foreign currency change in cost of goods sold when the hedged inventory purchases are sold.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Logitech's financial statements and supplementary data required by this item are set forth as a separate section of this Annual Report on Form 10-K. See Item 15(a) for a listing of financial statements and supplementary data provided in the section titled "Financial Statements and Supplementary Data.Statements."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
Logitech International S.A. | Fiscal 2023 Form 10-K | 50
ITEM 9A. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
The Company's management, with the participation of the Company’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO), has conducted an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this Annual Report on Form 10-K (this Annual Report) required by Exchange Act Rules 13a-15(b) or 15d-15(b). Disclosure controls and procedures are designed to reasonably assure that information required to be disclosed in our reports filed or submitted under the Exchange Act, such as this Annual Report on Form 10-K, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures are also designed to reasonably assure that this information is accumulated and communicated to our management, including the CEO and CFO, to allow timely decisions regarding required disclosure. Based on this evaluation, the CEO and CFO concluded that, as of the end of the period covered by this Annual Report, the Company’s disclosure controls and procedures were effective at a reasonable assurance level.
Attached as exhibits to this Annual Report are certifications of the CEO and CFO, which are required in accordance with Rule 13a-14 of the Exchange Act. This Controls and Procedures section includes the information concerning the controls evaluation referred to in the certifications, and it should be read in conjunction with the certifications for a more complete understanding of the topics presented.
(b) Management's Report on Internal Control over Financial Reporting
The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of the Company’s management, including the CEO and CFO, the Company conducted an evaluation of the effectiveness of its internal control over financial reporting based on the criteria established in the Internal Control-Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management has concluded that our internal control over financial reporting was effective as of March 31, 2020.2023.
The effectiveness of the Company's internal control over financial reporting as of March 31, 20202023 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in its report, which appears in Item 15.
(c) Changes in Internal Control over Financial Reporting
There were no changes in ourthe Company's internal control over financial reporting during the fourth quarter of fiscal year 20202023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
(d) Limitations on the Effectiveness of Controls
The Company's management, including the CEO and the CFO, does not expect that the Company's disclosure controls and procedures or internal control over financial reporting will prevent all errors and all fraud. Internal control over financial reporting, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives will be met. Because of the inherent limitations in internal control over financial reporting, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Logitech International S.A. | Fiscal 2023 Form 10-K | 51
ITEM 9B. OTHER INFORMATION
Logitech International S.A. | Fiscal 2023 Form 10-K | 52
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information regarding our executive officers is incorporated herein by reference to Part I, Item 1, above.
Other information required by this Item may be found in the definitive Proxy Statement for the 20202023 Annual Meeting of Shareholders and is incorporated herein by reference. The definitive Proxy Statement will be filed with the Commission within 120 days after our fiscal year end of March 31, 2020 (the Proxy Statement).
The Company's code of ethics policy entitled, "Logitech Code of Conduct" covers members of the Company's board of directors, the principal executive officer, principal financial and accounting officer and other executive officers as well as all other employees.
Any amendments or waivers of the code of ethics for members of the Company's board of directors or executive officers will be disclosed in the investor relations section of the Company's website within four business days following the date of the amendment or waiver. During fiscal year 2020, the Company updated and revised its code of ethics. The new code was posted to the investor relations section of the Company's website.
Logitech's code of ethics is available on the Company's website at www.logitech.com, and for no charge, a copy of the Company's code of ethics can be requested viathrough the following address or phone number:
Logitech
Investor Relations
7700 Gateway Boulevard
Newark, CA 94560 USA
Main (510) 795-8500
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item may be found in the Proxy Statement for the 20202023 Annual Meeting of Shareholders and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this item may be found in the Proxy Statement for the 20202023 Annual Meeting of Shareholders and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item may be found in the Proxy Statement for the 20202023 Annual Meeting of Shareholders and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item may be found in the Proxy Statement for the 20202023 Annual Meeting of Shareholders and is incorporated herein by reference.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)The following documents are filed as part of this Annual Report on Form 10-K:
1. Financial Statements and Supplementary Data
Financial Statements:
2. Financial Statement Schedule
3. Exhibits
Logitech International S.A. | Fiscal 2023 Form 10-K | 54
Index to Exhibits
| Incorporated by Reference | ||||||||||||||||||||||||||||||||||||||||||||
| Exhibit No. | Exhibit | Form | File No. | Filing Date | Exhibit No. | Filed Herewith | ||||||||||||||||||||||||||||||||||||||
| 3.1 | X | |||||||||||||||||||||||||||||||||||||||||||
| 3.2 | 10-Q | 0-29174 | 1/21/2021 | 3.1 | ||||||||||||||||||||||||||||||||||||||||
| 4.1 | X | |||||||||||||||||||||||||||||||||||||||||||
| 10.1 | ** | S-8 | 333-100854 | 5/27/2003 | 4.2 | |||||||||||||||||||||||||||||||||||||||
| 10.2 | ** | DEFA14A | 0-29174 | 7/26/2022 | App. A | |||||||||||||||||||||||||||||||||||||||
| 10.3 | ** | 10-Q | 0-29174 | 11/4/2008 | 10.1 | |||||||||||||||||||||||||||||||||||||||
| 10.4 | ** | DEFA14A | 0-29174 | 7/23/2013 | App. A | |||||||||||||||||||||||||||||||||||||||
| 10.5 | ** | DEFA14A | 0-29174 | 7/23/2013 | App. B | |||||||||||||||||||||||||||||||||||||||
| 10.6 | ** | 20-F | 0-29174 | 5/21/2003 | 4.1 | |||||||||||||||||||||||||||||||||||||||
| 10.7 | ** | 20-F | 0-29174 | 5/21/2003 | 4.2 | |||||||||||||||||||||||||||||||||||||||
| 10.8 | ** | DEFA14A | 0-29174 | 7/23/2013 | App. C | |||||||||||||||||||||||||||||||||||||||
| 10.9 | ** | 10-Q | 0-29174 | 11/4/2009 | 10.2 | |||||||||||||||||||||||||||||||||||||||
| 10.10 | ** | 10-Q | 0-29174 | 2/5/2013 | 10.2 | |||||||||||||||||||||||||||||||||||||||
| 10.11 | ** | 10-Q | 0-29174 | 1/22/2016 | 10.1 | |||||||||||||||||||||||||||||||||||||||
| 10.12 | ** | 10-K | 0-29174 | 5/26/2017 | 10.33 | |||||||||||||||||||||||||||||||||||||||
| 10.13 | ** | 10-K | 0-29174 | 5/26/2017 | 10.34 | |||||||||||||||||||||||||||||||||||||||
| 10.14 | ** | 10-Q | 0-29174 | 10/25/2018 | 10.1 | |||||||||||||||||||||||||||||||||||||||
| 10.15 | ** | 8-K | 0-29174 | 7/23/2019 | 10.1 | |||||||||||||||||||||||||||||||||||||||
| 10.16 | ** | 10-Q | 0-29174 | 7/23/2020 | 10.1 | |||||||||||||||||||||||||||||||||||||||
Logitech International S.A. | Fiscal 2023 Form 10-K | 55
| Incorporated by Reference | ||||||||||||||
| Exhibit No. | Exhibit | Form | File No. | Filing Date | Exhibit No. | Filed Herewith | ||||||||
| 2.1 | 8-K | 0-29174 | 12/14/2009 | 2.1 | ||||||||||
| 2.2 | *** | 10-K | 0-29174 | 5/23/2016 | 2.2 | |||||||||
| 2.3 | *** | 10-Q | 0-29174 | 11/1/2017 | 2.1 | |||||||||
| 2.4 | *** | 10-Q | 0-29174 | 11/1/2017 | 2.2 | |||||||||
| 2.5 | *** | 10-Q | 0-29174 | 10/25/2018 | 2.1 | |||||||||
| 2.6 | *** | 10-Q | 0-29174 | 10/24/2019 | 2.1 | |||||||||
| 3.1 | 10-K | 0-29174 | 5/17/2019 | 3.1 | ||||||||||
| 3.2 | 10-K | 0-29174 | 5/17/2019 | 3.2 | ||||||||||
| 4.1 | X | |||||||||||||
| 10.1 | ** | S-8 | 333-100854 | 5/27/2003 | 4.2 | |||||||||
| 10.2 | ** | DEFA14A | 0-29174 | 7/22/2016 | App. A | |||||||||
| 10.3 | ** | 10-Q | 0-29174 | 11/4/2008 | 10.1 | |||||||||
| 10.4 | ** | DEFA14A | 0-29174 | 7/23/2013 | App. A | |||||||||
| 10.5 | ** | DEFA14A | 0-29174 | 7/23/2013 | App. B | |||||||||
| 10.6 | ** | 20-F | 0-29174 | 5/21/2003 | 4.1 | |||||||||
| 10.7 | ** | 20-F | 0-29174 | 5/21/2003 | 4.2 | |||||||||
| 10.8 | ** | DEFA14A | 0-29174 | 7/23/2013 | App. C | |||||||||
| 10.9 | ** | 10-K | 0-29174 | 5/30/2008 | 10.1 | |||||||||
| 10.10 | ** | 10-Q | 0-29174 | 11/4/2009 | 10.2 | |||||||||
| 10.11 | ** | S-8 | 333-180726 | 4/13/2012 | 10.1 | |||||||||
| 10.12 | ** | S-8 | 333-180726 | 4/13/2012 | 10.2 | |||||||||
| 10.13 | ** | 10-Q | 0-29174 | 2/5/2013 | 10.2 | |||||||||
| 10.14 | ** | 10-Q | 0-29174 | 2/5/2013 | 10.3 | |||||||||
| 10.15 | ** | 10-K | 0-29174 | 5/30/2013 | 10.39 | |||||||||
| 10.16 | ** | 10-Q | 0-29174 | 1/22/2016 | 10.1 | |||||||||
| 10.17 | ** | 10-Q | 0-29174 | 1/22/2016 | 10.2 | |||||||||
| 10.18 | 10-Q | 0-29174 | 1/22/2016 | 10.5 | ||||||||||
| 10.19 | ** | 10-K | 0-29174 | 5/23/2016 | 10.31 | |||||||||
| 10.20 | ** | 10-K | 0-29174 | 5/23/2016 | 10.32 | |||||||||
| 10.21 | ** | 10-K | 0-29174 | 5/26/2017 | 10.33 | |||||||||
| 10.22 | ** | 10-K | 0-29174 | 5/26/2017 | 10.34 | |||||||||
| 10.23 | ** | 10-K | 0-29174 | 5/26/2017 | 10.35 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10.24 | ** | 10-Q | 0-29174 | 11/1/2017 | 10.10 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10.25 | ** | 10-Q | 0-29174 | 10/25/2018 | 10.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10.26 | ** | 8-K | 0-29174 | 7/23/2019 | 10.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10.17 | 10.17 | ** | 10-Q | 0-29174 | 7/23/2020 | 10.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10.18 | 10.18 | ** | X | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10.19 | 10.19 | ** | X | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10.20 | 10.20 | ** | 10-Q | 0-29174 | 7/28/2022 | 10.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10.21 | 10.21 | ** | 10-Q | 0-29174 | 7/28/2022 | 10.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 21.1 | X | 21.1 | X | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 23.1 | X | 23.1 | X | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 24.1 | X | 24.1 | X | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 31.1 | X | 31.1 | X | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 31.2 | X | 31.2 | X | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 32.1 | X | 32.1 | X | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | X | 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | X | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document | X | 101.SCH | XBRL Taxonomy Extension Schema Document | X | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | X | 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | X | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | X | 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | X | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | X | 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | X | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | X | 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | X | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | X | 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | 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 otherwise subject to liability under that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that we explicitly incorporate it by reference.
** Indicates management compensatory plan, contract or arrangement.
Logitech International S.A. | Fiscal 2023 Form 10-K | 56
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| LOGITECH INTERNATIONAL S.A. | ||||||||
| /s/ | ||||||||
Bracken Darrell President and Chief Executive Officer | ||||||||
/s/ Charles Boynton | ||||||||
| Charles Boynton Chief Financial Officer | ||||||||
| May | ||||||||
Logitech International S.A. | Fiscal 2023 Form 10-K | 57
POWER OF ATTORNEY AND SIGNATURES
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Bracken Darrell and Nate Olmstead,Charles Boynton, jointly and severally, his or her attorney-in-fact, with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||||||||||||
/s/ Wendy Becker | Chairperson of the Board | May | ||||||||||||
/s/ Bracken Darrell | President, Chief Executive Officer and Director (Principal Executive Officer) | May | ||||||||||||
/s/ | Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | May | ||||||||||||
/s/ Patrick Aebischer | Director | May | ||||||||||||
/s/ Edouard Bugnion | Director | May | ||||||||||||
/s/ | Director | May | ||||||||||||
/s/ | Director | May | ||||||||||||
/s/ Marjorie Lao | Director | May | ||||||||||||
/s/ Neela Montgomery | Director | May | ||||||||||||
/s/ Kwok Wang Ng | Director | May 17, 2023 | ||||||||||||
/s/ Michael Polk Michael Polk | Director | May | ||||||||||||
/s/ Deborah Thomas Deborah Thomas | Director | May 17, 2023 | ||||||||||||
/s/ Sascha Zahnd Sascha Zahnd | Director | May 17, 2023 | ||||||||||||
Logitech International S.A. | Fiscal 2023 Form 10-K | 58
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| Page | |||||
Report of Independent Registered Public Accounting Firm (PCAOB ID: 185) | |||||
Logitech International S.A. | Fiscal 2023 Form 10-K | 59
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Logitech International S.A.:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Logitech International S.A. and subsidiaries (the Company) as of March 31, 20202023 and 2019,2022, the related consolidated statements of operations, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended March 31, 2020,2023, and the related notes and financial statement schedule II (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of March 31, 2020,2023, based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of March 31, 20202023 and 2019,2022, and the results of its operations and its cash flows for each of the years in the three-year period ended March 31, 2020,2023, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 20202023 based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’sManagement's Report on Internal Control over Financial Reporting included in Item 9A.Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
Logitech International S.A. | Fiscal 2023 Form 10-K | 60
with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Evaluation of the significant assumptions underlying the breakage rates for certain Customer Programs
As discussed in Notes 2 and 8 to the consolidated financial statements, the Company recorded accounts receivable allowances totaling $194,703 thousand $211.0 million and accrued Customer Program liabilities totaling $206.5 million as of March 31, 20202023 for various cooperative marketing arrangements (marketing development funds and cooperative advertising arrangements), customer incentive and pricing programs together known as(collectively, Customer Programs.Programs). The Company estimates the percentage of Customer Programs whichthat will not be claimed or will not be earned by customers, which is commonly referred to as "breakage"“breakage”. The length of time between whenBreakage reduces the Company recognizes revenueCompany’s allowances and when customers make claims under theseaccruals for certain Customer Programs canand it is applied at the time of sale. The Company uses judgment in assessing the period in which claims are expected to be as long as one year. This requiressubmitted and the Company to use judgment to estimate breakage rates.relevance of historical claim experience.
We identified the assessmentevaluation of the significant assumptions underlying the breakage rates for certain Customer Programs as a critical audit matter. The significant assumptions in the breakage rates estimate included: 1) the determination of the period in which the claims are expected to be submitted by the customers, 2) the assessment of the relevance of historical customer claim experience, and 3) the assessment of the relevance of the historical trend of claims submitted after the expected period are considered the significant assumptions around the breakage rates estimate. The testing of such assumptions required aperiod. A high degree of auditor judgment was required to evaluate the significant assumptions, due to the inherent uncertainties related to such assumptions as well as recent changes in certain customers’ claim processing behavior in the relevance of historical collection experience to the determination of the breakage rates estimate.current economic environment.
The following are the primary procedures we performed to address this critical audit mattermatter. We evaluated the design and tested the operating effectiveness of internal control related to the process to determine the breakage rates estimate. This included the following. We tested certain internal controls overa control related to the Company’s revenue process, including controls overevaluation of the significant assumptions identified above.in the breakage rates estimate. We assessedevaluated the underlying information related to the expected periodsperiod that a customer claim will be submitted and assessed the relevance of historical claim experience rate for customer incentive and pricing programs and marketing development funds, by analyzing the trend in the customers’ historical claims and accruals information.information for certain Customer Programs. We assessed the relevance of the historical trend of claims submitted after the expected period by analyzing the trend of historical claims received after the expected period compared to the total earned amount of each respective period. In addition, we evaluated the Company’s ability to estimate the breakage rates by comparing the estimated breakage from fiscal 2019 againstyear 2022 to actual subsequent breakage.breakage in fiscal year 2023.
Assessment of the accruals for sales returns and certain Customer Programs
As discussed in Notes 2 and 8 to the consolidated financial statements, the Company recorded accrualsaccrued Customer Program liabilities of $30,267 thousand for sales returns and $130,220 thousand for Customer Programs$206.5 million as of March 31, 2020.2023. The Company records these accruals as a reduction of revenue at the time of sale. TheFor certain of these accruals, the Company estimated these accrualsthe amounts based on historical data or future commitments that are planned and controlled by the Company. The Company uses judgment in analyzing historical trends, inventories owned by and located at the customers, products sold by the direct customers to end customers or resellers, known product quality issues, negotiated terms, and
Logitech International S.A. | Fiscal 2023 Form 10-K | 61
other relevant customer and product information, such as stage of product life cyclelife-cycle, which are expected to experience unusually high discounting or returns.discounting.
We identified the assessment of the accruals for sales returns and certain Customer Programs as a critical audit matter. Historical experience being predictive of future returns and Customer Programs’ earned amounts is the keysignificant assumption used to estimate the accrualaccruals for sales returns and Customer Programs. Due to the inherent uncertainties related to the relevance of the predictive historical experience to the determination of the estimate, the testing required a high degree of auditor judgment.
The following are the primary procedures we performed to address this critical audit matter includedmatter. We evaluated the following. Wedesign and tested the operating effectiveness of certain internal controls overrelated to the critical audit matter. This included controls related to the Company’s accrual process, including controls overassessment of whether historical experience is predictive of Customer Programs’ earned amounts and the assumption discussed above.Company’s validation of the underlying channel inventory data used to estimate the accruals for Customer Programs. We assessed the historical experience used in estimating the accrualaccruals for sales returns and certain Customer Programs using a combination of Companythe Company’s internal historical information of sales, returns and Customer Programs’ earned amounts, third-party contracts, and relevant and reliable third-party channel inventory and sell-through data. We confirmedinspected selected customer contracts to assess the terms and conditions related to sales returns and certain Customer Programs. We analyzed channel inventory data trends by product and by region comparing fiscal 2020year 2023 quarterly channel inventory weeks on-hand ratios to prior fiscal years. In addition, we evaluated the Company’s ability to estimate the accruals for sales returns and certain Customer Programs by comparing recorded accruals from fiscal 2019year 2022 to actual subsequent returns and Customer Programs’ earned amounts.
/s/ KPMG LLP
We have served as the Company’s auditor since 2014.
San Francisco, California
Logitech International S.A. | Fiscal 2023 Form 10-K | 62
LOGITECH INTERNATIONAL S.A.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
| Years Ended March 31, | Years Ended March 31, | |||||||||||||||||||||||||||||||
| 2020 | 2019 | 2018 | 2023 | 2022 | 2021 | |||||||||||||||||||||||||||
| Net sales | $ | 2,975,851 | $ | 2,788,322 | $ | 2,566,863 | Net sales | $ | 4,538,818 | $ | 5,481,101 | $ | 5,252,279 | |||||||||||||||||||
| Cost of goods sold | 1,838,685 | 1,737,969 | 1,648,744 | Cost of goods sold | 2,806,438 | 3,204,072 | 2,903,215 | |||||||||||||||||||||||||
| Amortization of intangible assets and purchase accounting effect on inventory | 14,785 | 13,342 | 8,878 | |||||||||||||||||||||||||||||
| Amortization of intangible assets | Amortization of intangible assets | 12,865 | 14,023 | 13,329 | ||||||||||||||||||||||||||||
| Gross profit | 1,122,381 | 1,037,011 | 909,241 | Gross profit | 1,719,515 | 2,263,006 | 2,335,735 | |||||||||||||||||||||||||
| Operating expenses: | Operating expenses: | |||||||||||||||||||||||||||||||
| Marketing and selling | 533,324 | 488,263 | 435,489 | Marketing and selling | 809,182 | 1,025,899 | 770,284 | |||||||||||||||||||||||||
| Research and development | 177,593 | 161,230 | 143,760 | Research and development | 280,796 | 291,844 | 226,023 | |||||||||||||||||||||||||
| General and administrative | 94,015 | 98,732 | 96,353 | General and administrative | 124,652 | 148,648 | 166,577 | |||||||||||||||||||||||||
| Amortization of intangible assets and acquisition-related costs | 17,563 | 14,290 | 8,930 | Amortization of intangible assets and acquisition-related costs | 11,843 | 16,947 | 19,064 | |||||||||||||||||||||||||
| Impairment of intangible assets | Impairment of intangible assets | — | 7,000 | — | ||||||||||||||||||||||||||||
| Change in fair value of contingent consideration for business acquisition | 23,247 | — | (4,908 | ) | Change in fair value of contingent consideration for business acquisition | — | (3,509) | 5,716 | ||||||||||||||||||||||||
| Restructuring charges (credits), net | 144 | 11,302 | (116 | ) | Restructuring charges (credits), net | 34,573 | 2,165 | (54) | ||||||||||||||||||||||||
| Total operating expenses | 845,886 | 773,817 | 679,508 | Total operating expenses | 1,261,046 | 1,488,994 | 1,187,610 | |||||||||||||||||||||||||
| Operating income | 276,495 | 263,194 | 229,733 | Operating income | 458,469 | 774,012 | 1,148,125 | |||||||||||||||||||||||||
| Interest income | 9,619 | 8,375 | 4,969 | Interest income | 18,331 | 1,246 | 1,784 | |||||||||||||||||||||||||
| Other income (expense), net | 38,212 | (436 | ) | (2,437 | ) | Other income (expense), net | (13,278) | 560 | (1,789) | |||||||||||||||||||||||
| Income before income taxes | 324,326 | 271,133 | 232,265 | Income before income taxes | 463,522 | 775,818 | 1,148,120 | |||||||||||||||||||||||||
| Provision for (benefit from) income taxes | (125,397 | ) | 13,560 | 23,723 | ||||||||||||||||||||||||||||
| Provision for income taxes | Provision for income taxes | 98,947 | 131,305 | 200,863 | ||||||||||||||||||||||||||||
| Net income | $ | 449,723 | $ | 257,573 | $ | 208,542 | Net income | $ | 364,575 | $ | 644,513 | $ | 947,257 | |||||||||||||||||||
| Net income per share: | Net income per share: | |||||||||||||||||||||||||||||||
| Basic | $ | 2.70 | $ | 1.56 | $ | 1.27 | Basic | $ | 2.25 | $ | 3.85 | $ | 5.62 | |||||||||||||||||||
| Diluted | $ | 2.66 | $ | 1.52 | $ | 1.23 | Diluted | $ | 2.23 | $ | 3.78 | $ | 5.51 | |||||||||||||||||||
| Weighted average shares used to compute net income per share: | Weighted average shares used to compute net income per share: | |||||||||||||||||||||||||||||||
| Basic | 166,837 | 165,609 | 164,038 | Basic | 162,302 | 167,447 | 168,523 | |||||||||||||||||||||||||
| Diluted | 169,381 | 168,965 | 168,971 | Diluted | 163,704 | 170,414 | 171,775 | |||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
LOGITECH INTERNATIONAL S.A.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
| Years Ended March 31, | Years Ended March 31, | |||||||||||||||||||||||||||||||
| 2020 | 2019 | 2018 | 2023 | 2022 | 2021 | |||||||||||||||||||||||||||
| Net income | $ | 449,723 | $ | 257,573 | $ | 208,542 | Net income | $ | 364,575 | $ | 644,513 | $ | 947,257 | |||||||||||||||||||
| Other comprehensive income (loss): | Other comprehensive income (loss): | |||||||||||||||||||||||||||||||
| Currency translation gain (loss): | Currency translation gain (loss): | |||||||||||||||||||||||||||||||
| Currency translation gain (loss), net of taxes | (8,270 | ) | (7,790 | ) | 5,860 | Currency translation gain (loss), net of taxes | 1,373 | (14,051) | 12,695 | |||||||||||||||||||||||
| Reclassification of currency translation loss included in other income (expense), net | — | (510 | ) | — | ||||||||||||||||||||||||||||
| Reclassification of cumulative translation adjustments included in other income (expense), net | Reclassification of cumulative translation adjustments included in other income (expense), net | 219 | 1,051 | (1,738) | ||||||||||||||||||||||||||||
| Defined benefit plans: | Defined benefit plans: | |||||||||||||||||||||||||||||||
| Net gain (loss) and prior service credits (costs), net of taxes | (6,846 | ) | (7,353 | ) | 3,955 | |||||||||||||||||||||||||||
| Net gain (loss) and prior service costs, net of taxes | Net gain (loss) and prior service costs, net of taxes | 16,089 | 22,328 | (4,701) | ||||||||||||||||||||||||||||
| Reclassification of amortization included in other income (expense), net | 762 | (181 | ) | 127 | Reclassification of amortization included in other income (expense), net | (8,069) | (2,623) | 1,517 | ||||||||||||||||||||||||
| Hedging gain (loss): | Hedging gain (loss): | |||||||||||||||||||||||||||||||
| Deferred hedging gain (loss), net of taxes | 205 | 1,781 | (8,499 | ) | Deferred hedging gain (loss), net of taxes | 2,625 | 6,308 | (4,071) | ||||||||||||||||||||||||
| Reclassification of hedging loss (gain) included in cost of goods sold | (813 | ) | 1,810 | 5,808 | Reclassification of hedging loss (gain) included in cost of goods sold | (8,391) | (8,221) | 8,043 | ||||||||||||||||||||||||
| Total other comprehensive income (loss) | (14,962 | ) | (12,243 | ) | 7,251 | |||||||||||||||||||||||||||
| Total other comprehensive income | Total other comprehensive income | 3,846 | 4,792 | 11,745 | ||||||||||||||||||||||||||||
| Total comprehensive income | $ | 434,761 | $ | 245,330 | $ | 215,793 | Total comprehensive income | $ | 368,421 | $ | 649,305 | $ | 959,002 | |||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
Logitech International S.A. | Fiscal 2023 Form 10-K | 64
LOGITECH INTERNATIONAL S.A.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
| March 31, | March 31, | |||||||||||||||||||||
| 2020 | 2019 | 2023 | 2022 | |||||||||||||||||||
| Assets | Assets | |||||||||||||||||||||
| Current assets: | Current assets: | |||||||||||||||||||||
| Cash and cash equivalents | $ | 715,566 | $ | 604,516 | Cash and cash equivalents | $ | 1,149,023 | $ | 1,328,716 | |||||||||||||
| Accounts receivable, net | 394,743 | 383,309 | Accounts receivable, net | 630,382 | 675,604 | |||||||||||||||||
| Inventories | 229,249 | 293,495 | Inventories | 682,893 | 933,124 | |||||||||||||||||
| Other current assets | 74,920 | 69,116 | Other current assets | 142,876 | 135,478 | |||||||||||||||||
| Total current assets | 1,414,478 | 1,350,436 | Total current assets | 2,605,174 | 3,072,922 | |||||||||||||||||
| Non-current assets: | Non-current assets: | |||||||||||||||||||||
| Property, plant and equipment, net | 76,119 | 78,552 | Property, plant and equipment, net | 121,503 | 109,807 | |||||||||||||||||
| Goodwill | 400,917 | 343,684 | Goodwill | 454,610 | 448,175 | |||||||||||||||||
| Other intangible assets, net | 126,941 | 118,999 | Other intangible assets, net | 63,173 | 83,779 | |||||||||||||||||
| Other assets | 345,019 | 132,453 | Other assets | 316,293 | 320,722 | |||||||||||||||||
| Total assets | $ | 2,363,474 | $ | 2,024,124 | Total assets | $ | 3,560,753 | $ | 4,035,405 | |||||||||||||
| Liabilities and Shareholders' Equity | Liabilities and Shareholders' Equity | |||||||||||||||||||||
| Current liabilities: | Current liabilities: | |||||||||||||||||||||
| Accounts payable | $ | 259,120 | $ | 283,922 | Accounts payable | $ | 406,968 | $ | 636,306 | |||||||||||||
| Accrued and other current liabilities | 455,024 | 433,897 | Accrued and other current liabilities | 643,139 | 784,848 | |||||||||||||||||
| Total current liabilities | 714,144 | 717,819 | Total current liabilities | 1,050,107 | 1,421,154 | |||||||||||||||||
| Non-current liabilities: | Non-current liabilities: | |||||||||||||||||||||
| Income taxes payable | 40,788 | 36,384 | Income taxes payable | 106,391 | 83,380 | |||||||||||||||||
| Other non-current liabilities | 119,274 | 93,582 | Other non-current liabilities | 146,695 | 132,133 | |||||||||||||||||
| Total liabilities | 874,206 | 847,785 | Total liabilities | 1,303,193 | 1,636,667 | |||||||||||||||||
| Commitments and contingencies (Note 13) | Commitments and contingencies (Note 13) | |||||||||||||||||||||
| Shareholders' equity: | Shareholders' equity: | |||||||||||||||||||||
| Registered shares, CHF 0.25 par value: | 30,148 | 30,148 | Registered shares, CHF 0.25 par value: | 30,148 | 30,148 | |||||||||||||||||
| Issued shares—173,106 at March 31, 2020 and 2019 | ||||||||||||||||||||||
| Additional shares that may be issued out of conditional capitals — 50,000 at March 31, 2020 and March 31, 2019 | ||||||||||||||||||||||
| Additional shares that may be issued out of authorized capital — 34,621 at March 31, 2020 and March 31, 2019 | ||||||||||||||||||||||
| Issued shares —173,106 at March 31, 2023 and 2022 | Issued shares —173,106 at March 31, 2023 and 2022 | |||||||||||||||||||||
| Additional shares that may be issued out of conditional capital — 50,000 at March 31, 2023 and 2022 | Additional shares that may be issued out of conditional capital — 50,000 at March 31, 2023 and 2022 | |||||||||||||||||||||
| Additional shares that may be issued out of authorized capital — 17,311 at March 31, 2023 and 2022 | Additional shares that may be issued out of authorized capital — 17,311 at March 31, 2023 and 2022 | |||||||||||||||||||||
| Additional paid-in capital | 75,097 | 56,655 | Additional paid-in capital | 127,380 | 129,925 | |||||||||||||||||
| Shares in treasury, at cost— 6,210 and 7,244 shares at March 31, 2020 and 2019, respectively | (185,896 | ) | (169,802 | ) | ||||||||||||||||||
| Shares in treasury, at cost — 13,763 and 7,855 shares at March 31, 2023 and 2022, respectively | Shares in treasury, at cost — 13,763 and 7,855 shares at March 31, 2023 and 2022, respectively | (977,266) | (632,893) | |||||||||||||||||||
| Retained earnings | 1,690,579 | 1,365,036 | Retained earnings | 3,177,575 | 2,975,681 | |||||||||||||||||
| Accumulated other comprehensive loss | (120,660 | ) | (105,698 | ) | Accumulated other comprehensive loss | (100,277) | (104,123) | |||||||||||||||
| Total shareholders' equity | 1,489,268 | 1,176,339 | Total shareholders' equity | 2,257,560 | 2,398,738 | |||||||||||||||||
| Total liabilities and shareholders' equity | $ | 2,363,474 | $ | 2,024,124 | Total liabilities and shareholders' equity | $ | 3,560,753 | $ | 4,035,405 | |||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
LOGITECH INTERNATIONAL S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| Years Ended March 31, | Years Ended March 31, | |||||||||||||||||||||||||||||||
| 2020 | 2019 | 2018 | 2023 | 2022 | 2021 | |||||||||||||||||||||||||||
| Cash flows from operating activities: | Cash flows from operating activities: | |||||||||||||||||||||||||||||||
| Net income | $ | 449,723 | $ | 257,573 | $ | 208,542 | Net income | $ | 364,575 | $ | 644,513 | $ | 947,257 | |||||||||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||||||||||||||||
| Depreciation | 42,893 | 43,471 | 41,295 | Depreciation | 76,309 | 88,361 | 50,752 | |||||||||||||||||||||||||
| Amortization of intangible assets | 30,858 | 24,180 | 15,607 | Amortization of intangible assets | 24,407 | 30,179 | 31,818 | |||||||||||||||||||||||||
| Impairment of intangible assets | Impairment of intangible assets | — | 7,000 | — | ||||||||||||||||||||||||||||
| Loss on investments | Loss on investments | 14,073 | 1,683 | 5,910 | ||||||||||||||||||||||||||||
| Share-based compensation expense | 54,870 | 50,265 | 44,138 | Share-based compensation expense | 70,782 | 93,479 | 86,019 | |||||||||||||||||||||||||
| Loss (gain) on investments | 756 | (816 | ) | (669 | ) | |||||||||||||||||||||||||||
| Deferred income taxes | (159,853 | ) | (12,257 | ) | 7,141 | Deferred income taxes | 30,714 | 27,334 | 34,484 | |||||||||||||||||||||||
| Change in fair value of contingent consideration for business acquisition | 23,247 | — | (4,908 | ) | Change in fair value of contingent consideration for business acquisition | — | (3,509) | 5,716 | ||||||||||||||||||||||||
| Pension curtailment gains | Pension curtailment gains | (4,225) | — | — | ||||||||||||||||||||||||||||
| Other | (936 | ) | (230 | ) | (11 | ) | Other | 1,005 | 1,140 | (1,784) | ||||||||||||||||||||||
Gain on sale of investment in a privately held company | (39,767 | ) | — | — | ||||||||||||||||||||||||||||
| Changes in assets and liabilities, net of acquisitions: | Changes in assets and liabilities, net of acquisitions: | |||||||||||||||||||||||||||||||
| Accounts receivable, net | (15,768 | ) | (58,798 | ) | (26,363 | ) | Accounts receivable, net | 51,185 | (71,510) | (201,220) | ||||||||||||||||||||||
| Inventories | 60,388 | (21,551 | ) | 16,047 | Inventories | 247,309 | (276,640) | (427,501) | ||||||||||||||||||||||||
| Other assets | 18,319 | (8,800 | ) | (16,908 | ) | Other assets | 5,634 | (18,169) | (67,708) | |||||||||||||||||||||||
| Accounts payable | (24,250 | ) | (19,134 | ) | 17,695 | Accounts payable | (219,051) | (181,303) | 553,960 | |||||||||||||||||||||||
| Accrued and other liabilities | (15,480 | ) | 51,278 | 44,655 | Accrued and other liabilities | (128,707) | (44,240) | 440,935 | ||||||||||||||||||||||||
| Net cash provided by operating activities | 425,000 | 305,181 | 346,261 | Net cash provided by operating activities | 534,010 | 298,318 | 1,458,638 | |||||||||||||||||||||||||
| Cash flows from investing activities: | Cash flows from investing activities: | |||||||||||||||||||||||||||||||
| Purchases of property, plant and equipment | (39,484 | ) | (35,930 | ) | (39,748 | ) | Purchases of property, plant and equipment | (92,353) | (89,152) | (76,189) | ||||||||||||||||||||||
| Investment in privately held companies | (345 | ) | (2,717 | ) | (1,240 | ) | Investment in privately held companies | (4,357) | (1,463) | (4,115) | ||||||||||||||||||||||
| Acquisitions, net of cash acquired | (91,569 | ) | (133,814 | ) | (88,323 | ) | Acquisitions, net of cash acquired | (8,527) | (16,236) | (43,523) | ||||||||||||||||||||||
| Proceeds from return of investments | — | 124 | 237 | |||||||||||||||||||||||||||||
| Proceeds from return of strategic investments | Proceeds from return of strategic investments | — | — | 2,934 | ||||||||||||||||||||||||||||
| Purchases of short-term investments | — | (1,505 | ) | (6,789 | ) | Purchases of short-term investments | — | (10,000) | — | |||||||||||||||||||||||
| Sales of short-term investments | — | — | 6,789 | |||||||||||||||||||||||||||||
| Proceeds from sale of property, plant and equipment | 1,037 | — | — | |||||||||||||||||||||||||||||
| Purchases of trading investments | (11,964 | ) | (5,203 | ) | (6,053 | ) | ||||||||||||||||||||||||||
| Proceeds from sales of trading investments | 12,091 | 5,700 | 6,423 | |||||||||||||||||||||||||||||
| Proceeds from the sale of short-term investments | Proceeds from the sale of short-term investments | — | 8,260 | — | ||||||||||||||||||||||||||||
| Purchases of deferred compensation investments | Purchases of deferred compensation investments | (6,702) | (5,058) | (12,336) | ||||||||||||||||||||||||||||
| Proceeds from sales of deferred compensation investments | Proceeds from sales of deferred compensation investments | 6,209 | 5,786 | 13,247 | ||||||||||||||||||||||||||||
| Net cash used in investing activities | (130,234 | ) | (173,345 | ) | (128,704 | ) | Net cash used in investing activities | (105,730) | (107,863) | (119,982) | ||||||||||||||||||||||
| Cash flows from financing activities: | Cash flows from financing activities: | |||||||||||||||||||||||||||||||
| Payment of cash dividends | (124,180 | ) | (113,971 | ) | (104,248 | ) | Payment of cash dividends | (158,680) | (159,410) | (146,705) | ||||||||||||||||||||||
| Payment of contingent consideration for business acquisition | Payment of contingent consideration for business acquisition | (5,954) | (880) | — | ||||||||||||||||||||||||||||
| Purchases of registered shares | (50,437 | ) | (32,449 | ) | (30,722 | ) | Purchases of registered shares | (418,346) | (412,022) | (164,952) | ||||||||||||||||||||||
| Payment of contingent consideration for business acquisition | — | — | (5,000 | ) | ||||||||||||||||||||||||||||
| Proceeds from exercises of stock options and purchase rights | 22,241 | 18,057 | 41,910 | Proceeds from exercises of stock options and purchase rights | 28,790 | 29,649 | 43,810 | |||||||||||||||||||||||||
| Tax withholdings related to net share settlements of restricted stock units | (24,280 | ) | (30,770 | ) | (29,813 | ) | Tax withholdings related to net share settlements of restricted stock units | (29,163) | (64,156) | (32,082) | ||||||||||||||||||||||
| Net cash used in financing activities | (176,656 | ) | (159,133 | ) | (127,873 | ) | Net cash used in financing activities | (583,353) | (606,819) | (299,929) | ||||||||||||||||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (7,060 | ) | (10,134 | ) | 4,730 | |||||||||||||||||||||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | 111,050 | (37,431 | ) | 94,414 | ||||||||||||||||||||||||||||
| Cash, cash equivalents and restricted cash at beginning of the period | 604,516 | 641,947 | 547,533 | |||||||||||||||||||||||||||||
| Cash, cash equivalents and restricted cash at end of the period | $ | 715,566 | $ | 604,516 | $ | 641,947 | ||||||||||||||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | Effect of exchange rate changes on cash and cash equivalents | (24,620) | (5,247) | (3,966) | ||||||||||||||||||||||||||||
| Net (decrease) increase in cash and cash equivalents | Net (decrease) increase in cash and cash equivalents | (179,693) | (421,611) | 1,034,761 | ||||||||||||||||||||||||||||
| Cash and cash equivalents at beginning of the period | Cash and cash equivalents at beginning of the period | 1,328,716 | 1,750,327 | 715,566 | ||||||||||||||||||||||||||||
| Cash and cash equivalents at end of the period | Cash and cash equivalents at end of the period | $ | 1,149,023 | $ | 1,328,716 | $ | 1,750,327 | |||||||||||||||||||||||||
| Supplementary Cash Flow Disclosures: | Supplementary Cash Flow Disclosures: | |||||||||||||||||||||||||||||||
| Non-cash investing activities: | ||||||||||||||||||||||||||||||||
| Non-cash investing and financing activities: | Non-cash investing and financing activities: | |||||||||||||||||||||||||||||||
| Property, plant and equipment purchased during the period and included in period end liability accounts | $ | 5,021 | $ | 3,983 | $ | 3,869 | Property, plant and equipment purchased during the period and included in period end liability accounts | $ | 8,593 | $ | 11,890 | $ | 16,819 | |||||||||||||||||||
| Equity and debt investment in a privately held company | 42,350 | — | — | |||||||||||||||||||||||||||||
| Non-cash payment for contingent consideration for acquisition | Non-cash payment for contingent consideration for acquisition | $ | — | $ | 292 | $ | 28,463 | |||||||||||||||||||||||||
| Fair value of contingent consideration in accrued and other liabilities | Fair value of contingent consideration in accrued and other liabilities | $ | 2,151 | $ | 9,013 | $ | — | |||||||||||||||||||||||||
| Supplemental cash flow information: | Supplemental cash flow information: | |||||||||||||||||||||||||||||||
| Income taxes paid, net | $ | 20,851 | $ | 15,312 | $ | 15,051 | Income taxes paid, net | $ | 71,955 | $ | 192,898 | $ | 23,041 | |||||||||||||||||||