Logistea Annual Report 2007

Plain-text annual report

2007 ANNUAL REPORT Fiscal Year (U.S. dollars in thousands, except per share amounts) Total Revenues Gross Margin FY07 Non-GAAP Gross Margin Operating Income FY07 Non-GAAP Operating Income Operating Margin FY07 Non-GAAP Operating Margin Net Income FY07 Non-GAAP Net Income 2003 2004 2005 2006 2007 $ 1,100,288 $ 1,268,470 $ 1,482,626 $ 1,796,715 $ 2,066,569 33.1% 32.2% 34.0% 32.0% $ 123,882 $ 145,554 $ 171,674 $ 198,911 11.3% 11.5% 11.6% 11.1% $ 98,843 $ 132,153 $ 149,266 $ 181,105 34.3% 34.4% $ 230,862 $ 250,326 11.2% 12.1% $ 229,848 $ 244,786 $ $ 1.20 1.27 Earnings per diluted share $ 0.49 $ 0.67 $ 0.77 $ 0.92 FY07 Non-GAAP Earnings per diluted share Diluted number of shares (in millions) 205,638 200,639 198,250 198,770 190,991 Cash Flow from Operations $ 145,108 $ 166,460 $ 213,674 $ 152,217 $ 305,681 Capital Expenditures $ 28,657 $ 24,718 $ 40,541 $ 54,102 $ 47,246 Cash & Cash Equivalents net of Short-Term Debt $ 208,632 $ 280,624 $ 331,402 $ 230,943 $ 398,966 Shareholders’ Equity $ 365,562 $ 457,080 $ 526,149 $ 685,176 $ 844,525 Fiscal Year-end Market Capitalization (in billions) $ 1.40 $ 2.17 $ 2.92 $ 3.80 $ 5.32 NOTE: The Fiscal Year 2007 Non-GAAP gross margin, operating income, operating margin, net income and earnings per diluted share ﬁ gures exclude the cost or net cost of share- based compensation in Fiscal Year 2007, the ﬁ rst year we reﬂ ected this expense in our ﬁ nancial results. A reconciliation between these ﬁ gures and the most directly comparable Fiscal Year 2007 GAAP ﬁ gures is presented at the end of this Financial Review. We sometimes use information derived from consolidated ﬁ nancial information but not presented in our ﬁ nancial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP). Certain of these data are considered “non-GAAP ﬁ nancial measures” under the U.S. Securities and Exchange Commission rules. The adjustments between the GAAP and non-GAAP ﬁ nancial measures presented above consist of share-based compensation expense for employee stock options and employee stock purchases, and the related income tax effect, as recognized in accordance with SFAS 123R. Because we implemented SFAS 123R effective April 1, 2006, our ﬁ nancial results prior to this time do not include the effect of share-based compensation expense. Our management uses these non-GAAP measures in its ﬁ nancial and operational decision-making. Our management believes these non-GAAP measures, when considered in conjunction with the corresponding GAAP measures, facilitate the comparison by our investors of results for periods subsequent to our adoption of SFAS 123R, with corresponding prior periods for which SFAS 123R was not effective. FINANCIAL REVIEW 2,067 1,797 1,483 1,268 1,100 944 736 592 230.9 229.8 198.9 181.1 171.7 149.3 145.6 132.2 123.9 97.2 98.8 75.0 54.7 45.1 41.0 30.0 340 243 186 144 140 142 100 98 90 68 36 33 91 57 23 121 88 81 33 34 39 40 FY 00 01 02 03 04 05 06 07 FY 00 01 02 03 04 05 06 07 FY 00 01 02 03 04 05 06 07 NET SALES (in millions of us dollars) INCOME (in millions of us dollars) Operating Income Net Income SHARE PERFORMANCE (based on an initial investment of 100) Logitech Swiss Performance Index Nasdaq 100 LETTER TO OUR SHAREHOLDERS ENGLISH FY 2007 was a banner year for Logitech and our best year ever. In a truly ﬁ tting way to celebrate our 25th anniver- sary, we achieved several important milestones. It was our ninth consecutive year of record sales, capped by our 34th straight quarter of double-digit sales growth. We exceeded $2 billion in annual sales. We shipped more than 150 million products and introduced many new award-winning peripherals. We generated the largest cash ﬂ ow from operations in our history: $306 million, more than double that of last year. And, we became part of the Nasdaq 100 index, ranking Logitech among the largest publicly traded technology companies in the world. Over the past decade, while growing consistently, we have strived to develop into a larger company that can deliver and support sustained growth well into the future. Our executive team is now stronger than ever, with a blend of experience and passion that can lead us in the next phase of our growth. The depth and breadth of this team is one of our most cherished assurances for the future of our company. And our employees around the globe are as passionate today about our products, customers and opportunities as was the enthusiastic team that pioneered the company more than 25 years ago. They are our most valuable asset and we cannot be more proud of what they have accomplished. As we continue to grow into a larger company, we’re working on the skills, processes and infrastructure needed to sustain our growth. We are also keen to preserve our culture of per- sonal ownership and collaborative decision making, which are among the good traits of smaller companies. Our success in this important balance will ensure the longevity and the uniqueness of your company. We are conﬁ dent that the signiﬁ cant progress we are making toward management excellence and scalability will allow us to grow by taking advantage of the many opportunities ahead—both in our core business as well as in what we call the new consumer electronics for the digital home. In our core business, we are driving innovation in PC navigation, notebook peripherals, Internet communications, gaming and digital music. We are pursuing opportunities in the digital home by offering our Harmony remote controls to tame the complexities of home-entertainment systems. And, with our October 2006 acquisition of Slim Devices, we are offering people the ability to enjoy Internet-based radio and their own digital-music libraries anywhere in their home. In the following pages, you will ﬁ nd a review of our product businesses. For each of them, we believe Logitech is poised for ongoing leadership and growth. Our financial resources will be used to invest in this growth, to pay for complementary acquisitions to broaden our portfolio, and to continue our share buyback program as an efﬁ cient way to return value to you. As we broaden our product portfolio and pursue new market opportunities, it is more critical than ever to keep the people who buy and use our products at the center of our focus. Our ongoing goal is for all our customers to be delighted by their experience with our products, services and support. Logitech values the many loyal partners who contribute across our business with great competence and ﬂ exibility. We wish to express our appreciation to them, to all our employees worldwide, and to the members of our Board of Directors, who provide considered guidance and expertise. We offer special thanks to Shin’ichi Okamoto, who is retiring from our Board after three years of service. Finally, we would like to thank our shareholders for your continued faith in us. FY 2007 has been an outstanding year for Logitech and we look forward to continued success in the years to come. Sincerely, GUERRINO DE LUCA President and Chief Executive Ofﬁ cer DANIEL BOREL Chairman of the Board FRANÇAIS L’année ﬁ scale 2007 a été une année phare pour Logitech, la meilleure de son histoire. Alors que nous célébrions notre 25ème anniversaire, nous avons vécu quelques moments clé. Tout d’abord, nous avons enregistré notre neuvième année consécutive de chiffre d’affaires records, ainsi que notre 34e trimestre d’afﬁ lée de croissance à deux chiffres de nos ventes. Nous avons dépassé le cap des USD 2 milliards de ventes annuelles, livrant plus de 150 millions de produits à travers le monde, dont de nombreux nouveaux périphériques primés par divers organismes. Nous avons généré le plus fort cash-ﬂ ow opérationnel de notre histoire : USD 306 millions, plus du double de l’an dernier. Et enﬁ n, nous avons rejoint les plus grandes entreprises technologiques cotées en bourse en faisant notre entrée dans l’indice Nasdaq 100. Au cours des dix dernières années, et tout en croissant d’une façon continue, nous avons structuré la société, lui donnant la solidité nécessaire pour soutenir une croissance à long terme. Passionnée et forte de son expérience, notre équipe dirigeante est plus solide que jamais. La richesse et la diversité des ses talents sont notre meilleure garantie d’avenir. Nos employés à travers le monde font preuve du même enthou- siasme pour nos produits, nos clients et notre potentiel de croissance que l’équipe qui fonda l’entreprise, il y a plus d’un quart de siècle. Ils sont notre ressource la plus précieuse, et nous sommes ﬁ ers de ce qu’ils ont accompli. Alors que Logitech continue sa croissance, nous développons les compétences, les processus et les infrastructures pour étayer cette croissance. Mais nous sommes également attentifs à préserver une culture qui favorise à la fois la responsabilité individuelle et la prise de décision collégiale. C’est en mainte- nant ce difﬁ cile équilibre que nous garantirons la longévité et l’identité unique de notre entreprise. Nous pensons que les progrès réalisés au niveau de l’amélioration continue de la gestion et de l’adaptabilité nous permettront de croître en tirant parti des nombreuses opportunités qui se présenteront, tant dans notre métier de base que dans ce que nous appelons la nouvelle électronique grand public, notamment celle destinée à la « maison numérique ». Dans notre métier de base, nous sommes à la pointe de l’innovation dans la navigation sur PC, les périphériques pour ordinateurs portables, les communications sur Inter- net, les périphériques de jeu et la musique numérique. Nous exploitons le potentiel de la « maison numérique » avec nos télécommandes universelles Harmony, qui simpliﬁ ent la complexité des systèmes de divertissement à domicile. Et, depuis la reprise de Slim Devices, en octobre 2006, nous offrons également la possibilité d’écouter la radio par Internet ou sa propre librairie musicale numérique où que l’on soit dans la maison. Les pages qui suivent vous présen- teront un aperçu de nos différentes catégories de produits. Pour chacune d’entre elles, nous sommes convaincus que Logitech est parfaitement placé pour poursuivre sa croissance et s’imposer en leader. Quant à nos ressources ﬁ nancières, elles seront utilisées pour soutenir notre croissance, pour ﬁ nancer des acquisitions susceptibles d’élargir notre portefeuille de produits, et pour nous permettre de poursuivre notre programme de rachat de titres, moyen privilégié de vous faire bénéﬁ cier de l’augmentation de valeur de notre société. Alors que nous étoffons notre offre et pénétrons de nouveaux marchés, nous sommes tout à fait conscients que nous devons nous préoccuper sans relâche de la satisfaction pleine et entière de nos clients, que ce soit par rapport à nos produits, à nos services ou à notre support technique. Logitech apprécie à leur juste valeur la contribution des nombreux et fidèles partenaires qui apportent leur compétence et leur flexibilité dans tous les secteurs de notre activité. Nous tenons également à exprimer notre gratitude à tous nos collaborateurs à travers le monde ainsi qu’aux membres de notre Conseil d’administration qui nous font bénéﬁ cier de leurs conseils et de leur expérience, et remercions particulièrement Shinichi Okamoto, qui se retire de notre Conseil à l’issue de son mandat de trois ans. Nous tenons enﬁ n à remercier nos actionnaires pour la conﬁ ance qu’ils n’ont cessé de nous témoigner. L’exercice ﬁ scal 2007 a été une année exceptionnelle pour Logitech et nous nous réjouissons de continuer dans la voie du succès dans les années à venir. Avec nos salutations les meilleures GUERRINO DE LUCA President and Chief Executive Ofﬁ cer DANIEL BOREL Chairman of the Board DEUTSCH 2007 war das erfolgreichste Geschäftsjahr in der Geschichte von Logitech und ein Meilenstein für unser Unternehmen. So hatten wir anlässlich unseres fünfundzwanzigjährigen Bestehens gleich mehrere Gründe zum Feiern. 2007 war das neunte Jahr in Folge, in dem wir Rekordabsätze erzielten. Gleichzeitig verzeichneten wir das 34. Quartal ohne Unterbrechung mit zweistelligem Umsatzwachstum. Unser Jahresumsatz überstieg 2 Mrd. $, und das Absatzvolumen erreichte über 150 Millionen Produkte, darunter zahlreiche preisgekrönte Peripheriegeräte. Mit 306 Mio. $ verbuchten wir den höchsten operativen Cashﬂ ow unserer Geschichte, mehr als doppelt so viel wie im Vorjahr. Zudem wurde Logitech in den Nasdaq 100- Index aufgenommen und zählt damit zu den bedeutendsten börsennotierten Technologieunternehmen der Welt. Im Laufe des letzten Jahrzehnts haben wir unseren stetigen Aufwärtstrend dazu genutzt, uns zu einem grösseren Unternehmen zu entwickeln, das in der Lage ist, langfristig solides und dauerhaftes Wachstum zu gewährleisten. Unser erfahrenes und zugleich begeistertes Managementteam ist stärker denn je und wird uns sicher in die nächste Wachstum- sphase führen. Die vielseitigen Kompetenzen dieses Teams sind eine der wertvollsten Stärken zur Sicherung der Zukunft unseres Unternehmens. Zugleich setzen sich unsere Mitarbe- iterinnen und Mitarbeiter in allen Teilen der Welt mit ebenso großem Enthusiasmus für unsere Produkte, Kunden und Projekte ein wie ihre Vorgänger, die das Unternehmen vor über 25 Jahren mit Pioniergeist aufbauten. Sie bilden unser kostbarstes Kapital, und wir sind stolz auf die Leistungen, die sie vollbracht haben. Im Zuge unserer Expansion bringen wir die Fähigkeiten, Prozesse und Infrastrukturen hervor, die zur Gewährleistung unseres weiteren Wachstums erforderlich sind. Gleichzeitig sind wir bestrebt, unsere Kultur der Eigenverantwortlichkeit und gemeinsamen Entscheidungsﬁ ndung, eine typische Stärke kleinerer Firmen, zu bewahren. Nur wenn wir dieses entscheidende Gleichgewicht aufrechterhalten, können wir den dauerhaften Erfolg und den einzigartigen Charakter unseres Unternehmens sichern. Wir sind überzeugt, dass es unsere signiﬁ kanten Fortschritte auf dem Weg zur Exzellenz im Management und zur Skalierbarkeit erlauben werden, die zahlreichen Wachstums- chancen von morgen optimal zu nutzen. Das gilt für unser Kerngeschäft ebenso wie für das, was wir „neue Unterhaltung- selektronik für das digitale Heim” nennen. In unserem Kerngeschäft treiben wir die Innovation in den Bereichen PC-Navigation, Peripheriegeräte für Notebooks, Internet-Kommunikation, Spiele und digitale Musik ständig voran. Gleichzeitig erschließen wir mit unseren Harmony- Fernbedienungen, welche die Komplexität von Heimunter- haltungssystemen erheblich reduzieren, den Markt des „digitalen Heims“. Schließlich bieten wir dank der Übernahme der Firma Slim Devices im Oktober 2006 den Konsumenten überall in ihrer Wohnung den Zugriff auf Internet-basiertes Radio und ihr eigenes digitales Musikarchiv. Auf den folgen- den Seiten ﬁ nden Sie einen Überblick über unsere Produkt- bereiche. Wir sind überzeugt, dass Logitech in jeder dieser Sparten gute Chancen hat, weiter zu wachsen und eine Führungsrolle zu spielen. Unsere ﬁ nanziellen Ressourcen werden wir dazu nutzen, in dieses Wachstum zu investieren, weitere Akquisitionen zur Erweiterung unseres Produktfolios zu realisieren und unser Aktienrückkaufprogramm fortzuführen als efﬁ zienter Weg, Sie am Wertzuwachs teilhaben zu lassen. Im Zuge der Erweiterung unseres Produktportfolios und der Nutzung neuer Marktchancen müssen die Menschen, die unsere Produkte kaufen und verwenden, mehr denn je im Mittelpunkt unseres Engagements stehen. Unser Hauptziel besteht darin, dafür zu sorgen, dass alle unsere Kunden Freude haben an unseren Produkten, Service- und Supportleistungen. Logitech weiß die Unterstützung seiner zahlreichen treuen Partner zu schätzen, die auf allen Ebenen durch ihre Kompetenz und Flexibilität zum Erfolg unseres Unternehmens beitragen. Wir danken ihnen und unseren Mitarbeitern in der ganzen Welt. Ferner verdienen die Mitglieder unseres Verwal- tungsrates, die sich durch ihre beachtlichen Führungsqual- itäten und Expertise auszeichnen, unsere Anerkennung. Unser besonderer Dank gilt Shin’ichi Okamoto, der sich nach drei Jahren Amtszeit aus dem Verwaltungsrat zurückzieht. Schließlich möchten wir unseren Aktionärinnen und Aktion- ären für ihr stetiges Vertrauen danken. Das Geschäftsjahr 2007 war ein herausragendes Jahr für Logitech, und wir sind überzeugt, dass weitere erfolgreiche Jahre auf uns zukommen. Mit freundlichen Grüssen GUERRINO DE LUCA President and Chief Executive Ofﬁ cer DANIEL BOREL Chairman of the Board 34.3% GROSS MARGIN REFLECTS THE VALUE OF INNOVATION HARMONY® 1000 Z-10 INTERACTIVE 2.0 SPEAKER SYSTEM MILLIONS $ NET SALES SALES GROWTH 2,100 1,900 1,700 1,500 1,300 1,100 900 700 500 300 FY 2,067 +15% 1,797 +21% 1,483 +17% 1,268 +15% 1,100 +17% 944 +28% 736 +24% 592 +32% 00 01 02 03 04 05 06 07 50% 40% 30% 20% 10% 0% -10% -20% FY Logitech PC Industry Mobile Phone Industry (Top 6) 00 01 02 03 04 05 06 07 Source: Company reports Consumer interest in wireless devices has never been greater and goes well beyond the desktop PC. Our extensive experience in radio-frequency technology has allowed us to expand our wireless offerings to game controllers, headphones for the iPod® and, most recently, wireless music distribution in the home. 2.) Internet Communication The rapid adoption of broadband continued in FY 2007 as the number of broadband users grew to more than 290 million. The higher data-transmission speeds enable and enhance communication applications such as Windows Live™ Messenger and Skype™. As an indication of the popu- larity of these applications, there were more than 11 billion cumulative video sessions conducted on Windows Live through January 2007. The combination of the growing popularity of Internet communications, our market-leading position in webcams and our competitive strengths in PC audio peripherals leaves us uniquely positioned to ride the wave of future growth. 3.) Digital Music Digital music is everywhere, on the PC, on the iPod and streamed wirelessly throughout the home. We’re addressing the growing demand for end-to-end solutions for digital music in the home by offering speakers for listening to music on the PC and an expanded portfolio of iPod speakers and headphones. Most recently we strengthened our position in the emerging wireless music category with our acquisition of Slim Devices. Ninth Consecutive Year of Double-Digit Growth in Sales with Accelerating Proﬁ t Growth* Fiscal Year 2007 was the best in our history. At the start of the year we set a goal to improve our proﬁ tability and we did, with our best gross, operating and net margins ever. We also targeted an improvement in our cash ﬂ ow from operations and we doubled last year’s total. In FY 2007 we exceeded $2 billion in sales for the ﬁ rst time in our history, with sales up by 15 percent year over year to $2.07 billion. Net income grew by 35 percent to a record high of $245 million. We also posted our 34th consecutive quarter of double-digit sales growth, a streak that began in December 1998. While sales in the PC in- dustry grew by only 5 percent year over year in CY 2006, the 16 percent growth of our retail sales (89 percent of our FY 2007 sales) demonstrated once again that our business is largely decoupled from PC industry growth trends. We were able to grow our retail sales in the Americas by 18 percent in FY 2007 despite widespread concerns about the health of U.S. consumer spending. We believe that the uniqueness of our business model, which features consistently innovative retail offerings at very affordable price points combined with wide distribution and strong brand presence, has been a major factor in our continued success. A key driver in both our recent performance as well as our outlook for continued growth is our ability to take advantage of the opportunities related to four megatrends: 1.) Wireless Connectivity Logitech has long been the leader in cordless mice and keyboards. We estimate cordless penetration in the PC installed base remains low at just 22 percent, providing us with a signiﬁ cant opportunity for continued growth. * FY 2007 gross margin, operating expenses, operating income, operating margin, net income, tax rate, net margin and EPS are non-GAAP measures that exclude the costs of share-based compensation. A reconciliation between GAAP and non-GAAP measures is provided at the end of this document. ASP TRENDS NOTEBOOK LOGITECH HIGH-END MOUSE U.S. DOLLARS 1,900 1,500 1,100 100 80 60 CY 01 02 03 04 05 06 Source: Gartner (Notebook ASP) CORDLESS PENETRATION PC INSTALLED BASE INSTALLED CORDLESS MICE / KEYBOARDS MILLIONS 800 700 600 500 400 300 200 100 0 FY 00 04 Source: Logitech estimates based on available market data 03 02 01 05 06 07 4.) Digital Home In CY 2006 more than 54 million ﬂ at-panel TVs were sold worldwide, up 91 percent year over year. The face of consumer electronics is changing with devices offering increased functionality through more software content, often resulting in increased complexity. This trend offers ample opportunity for our input-device and remote-control businesses. With 25 years of experience integrating hardware and software to provide the consumer with a rewarding and productive experience, we believe we’re well armed for success in the digital home of the future. Pointing Devices: Revolution Drives Growth Our pointing devices business continues to thrive even after 25 years. Total retail pointing devices sales in FY 2007 were up 11 percent year over year to $511 million, driven by the acceleration of cordless mice growth to 25 percent. The growth in cordless mice was fueled by the successful launch of our MX™ Revolution and VX Revolution™ mice as well as the continued adoption of mice for notebooks. While roughly 37 percent of PCs shipped in CY 2006 were notebooks, our research and our sales demonstrate that many notebook users prefer to use a mouse rather than the notebook’s built-in pointing device. In FY 2007 our sales of mice designed speciﬁ cally for notebook users grew by 64 percent compared to the prior year. We believe the success of the MX Revolution demonstrates that replacement sales are becoming an increasingly important growth driver. We estimate that 22 percent of the PC installed base has a cordless mouse or keyboard. This is both small enough to provide a promising oppor- tunity to continue increasing cordless penetration and large enough, with a cordless user community of more than 100 million, to generate upgrade sales. Our research shows that 47 percent of the purchasers of high-end mice have bought 3 mice in just a 3-year period. Keyboards: Return to Growth Our sales of keyboards and desktops grew by 14 percent to $372 million in FY 2007. Sales of our Cordless Desktops, which combine a cordless keyboard and mouse in the same package, returned to single-digit growth in FY 2007, with sales growth accelerating to 16 percent in the fourth quarter. The EasyCall™ Desktop® for VoIP is just one example of our ability to leverage the synergies in our product portfolio. The speaker phone in this product demonstrates our VoIP audio know-how while the software automates the VoIP experience on the PC. Our Cordless Desktop offerings are well positioned to take advantage of the new navigation features in Windows Vista™ such as Flip3D and Zoom. The highlight of the year in the keyboard category, which grew by 36 percent over the prior year, was the launch of the ultra-high-end diNovo Edge™ keyboard. This innovative and stylish standalone keyboard provides the consumer with the ability to match our best keyboard with the mouse of their choice. In FY 2007 we also expanded our keyboard line to address the opportunity inherent in the growing adoption of notebook PCs. Our research indicates that many notebooks are used primarily as a desktop PC replace- ment rather than as a mobile device. Given the smaller keyboard and monitor, notebooks present a number of ergonomic trade-offs for the user. The Logitech® Alto™, a combination keyboard and notebook stand, was our ﬁ rst offering designed to enhance the user’s experience by embracing the notebook form factor while providing a full-sized keyboard and USB hub, and raising the monitor to a more comfortable viewing height. OF DOUBLE DIGIT REVENUE GROWTH34 CONSECUTIVE QUARTERS DINOVO EDGE ™ V450 LASER CORDLESS MOUSE FOR NOTEBOOKS 8 YEARS OF DOUBLE DIGIT EPS GROWTH QUICKCAM® FUSION ™ MM50 PORTABLE SPEAKERS FOR IPOD® MILLIONS WEBCAM PENETRATION 300 250 200 150 100 50 0 FY 01 02 03 04 05 06 07 Global Broadband Subscribers Webcams Installed MILLIONS 100 iPOD INSTALLED BASE 80 60 40 20 0 FY 02 03 04 05 06 07 Source: Point –Topic, Logitech estimates based on available market data Source: Company reports Video: Riding the Rapid Growth in Internet Communication Video communication is going mainstream, with consumers becoming increasingly aware of the new communication capabilities. More and more consumers have access to a broadband Internet connection, which provides the base for high-speed video communication. Fiscal Year 2007 was a solid year for webcams with retail sales growth of 15 percent year over year to $314 million. The penetration of webcams in the PC installed base remains small at 13 percent, leaving signiﬁ cant room for future growth. The main growth enabler in the category has always been applications, which is where we’ve focused the majority of our video R&D efforts. The Logitech Video Effects software has proven to be a very successful source of competitive differentiation, with more than 14 million Video Effects downloaded since the launch in August 2005. Our RightLight™ 2 and RightSound™ technologies optimize lighting and sound conditions for video commu- nication. As one example of hardware innovation, in FY 2007 we introduced the QuickCam® Ultra Vision. This top-of-the-line webcam provides noticeably higher-quality images through the use of a large glass lens. While Micro- soft’s entry in the category in FY 2007 created substantial volatility that contributed to a signiﬁ cant slowdown in our sales growth in the second half of the year, we believe the strengths we’ve demonstrated over the last eight years in both software and hardware technology will allow us to generate continued double-digit growth and maintain our market-leading position in the retail webcam category. In addition to our retail offerings, we also had success in our OEM business with the sales of embedded video modules for notebooks. We’re excited about the trend toward notebooks including an embedded webcam. As the leader in webcams we believe we’re well-positioned to both capture a sizeable share of the embedded video market with the leading PC OEMs and to beneﬁ t in our retail business from consumers’ increased awareness of the beneﬁ ts of video communication. Audio: Growth through End-to-End Solutions Our audio business continued to grow in FY 2007 with sales up 21 percent year over year to $404 million. We were able to signiﬁ cantly improve proﬁ tability in our PC speaker business due to a variety of factors, including redesigning our packaging to reduce our logistics costs. We also reinvented the PC speaker category with the introduction of the Z-10 Interactive Speaker System. The Z-10 speakers feature a high-style design as well as a touchpad to control digital music on the PC, including iTunes®. This was the ﬁ rst PC speaker with embedded soft- ware, an innovation that we view as an opportunity for strong differentiation and higher price points. As a result of the value and innovation across our range of offerings, our PC speaker business grew 21 percent in FY 2007. We also achieved strong growth in FY 2007 in our iPod speaker business, which more than doubled year over year. Much of our success in this category was driven by our mm50 Portable speakers for iPod, which have been one of our best-selling speakers for the last two years. Expanding our iPod speaker offerings allowed us to signiﬁ cantly increase our market share in the category during FY 2007. Digital music is the core of the digital home. The ongoing transition of music collections from CD storage to PC storage drives a growing need for access and distribution solutions for music in the home. To signiﬁ cantly strengthen HARMONY GROWTH POTENTIAL IN U.S. U.S. HOUSEHOLDS WITH PVR U.S. HOUSEHOLDS WITH HDTV Source: Logitech estimates based on available market data U.S. HOUSEHOLDS WITH DIGITAL CABLE OR SATELLITE With Harmony Without Harmony our capabilities in this nascent market, in October 2006 we acquired the Mountain View, California-based Slim Devices for $20 million plus a possible performance-based payment tied to reaching future revenue targets. Slim Devices has developed a solution that enables people to enjoy high-quality digital music, in multiple rooms of the home, regardless of whether the music is streaming directly from the Internet, or from a PC, Mac®, or storage device on the network. We’re excited about the potential for this emerging category and believe it can be a strong growth driver for us in the years to come. Harmony: Ready for the Mass Market Fiscal Year 2007 was an excellent year for our Harmony® remotes, with sales up by 60 percent to $92 million. Our unique database-based solution for universal remote controls has placed us in the market-leading position for the overall remote control category in the U.S. with a market share exceeding 30 percent. Our key strategic goal for our advanced universal remotes in FY 2007 was to broaden their appeal to the “early majority” of mass- market consumers. We invested signiﬁ cantly to simplify the Harmony experience with new software and Internet applications. In addition to broadening the addressable user-base through a more satisfying setup experience, we also expanded our hardware portfolio with the Harmony 1000. This top-of-the-line remote offers a color touch screen to control infrared devices as well as devices with Z-Wave™ technology such as light switches or high- voltage alternating current (HVAC) systems. Even with our initial success, we estimate the penetration of Harmony remotes in the 59 million U.S. households with digital cable or satellite is still less than 2 percent, an indication of what we believe is a vast growth opportunity. Beyond the U.S. market, we continue to roll out the Harmony remotes in Europe and Asia Paciﬁ c. Gaming: Strong Growth in PC Category—Ready to Ride the Playstation3 Wave Fiscal Year 2007 was a transitional period for our gaming business, with sales up by 6 percent year over year to $146 million. The transition was related to our peripherals for gaming consoles, where sales declined by 38 percent. This decline was due primarily to the transition from the Playstation®2 to the Playstation®3, which was launched during the latter part of our ﬁ scal year. While we were ready with offerings for the Playstation3 at launch, our opportunity for strong growth in the category is largely dependent on the size of the installed base of game consoles. We expect that the Playstation3 installed base will be substantial by Christmas 2007 and that sales of our console gaming controllers should beneﬁ t accordingly. Fiscal Year 2007 was a great year for our PC gaming business, with sales up 63 percent year over year. This strong performance was driven primarily by the success of products like our G15 Gaming Keyboard and our G25 Racing Wheel. We also added signiﬁ cant innovation to the gaming controller category with our Chillstream™ technology, which keeps gamers’ hands dry with a proprietary built-in cooling fan. Innovation is the Key: The Making of a Mouse Our results in FY 2007 are the latest demonstration of our ability to consistently deliver innovative products at attractive, stable price points that allow us to reliably grow our profitability. Our track record of productive innovation has taught us that competitive breakthroughs don’t just happen. They require a robust pipeline of new $306M CASH-FLOW FROM OPERATIONS DOUBLED OVER PREVIOUS YEAR CHILLSTREAM ™ CONTROLLER HARMONY® 890 27% INCREASE IN NET PROFIT DRIVEN BY HIGHER GROSS MARGIN MX ™ REVOLUTION MICROGEAR ™ PRECISION SCROLL WHEEL RESEARCH AND DEVELOPMENT CENTERS products every year and we’ve developed an R&D process to ﬁ ll that pipeline. In FY 2007 we invested $105 million or 5 percent of sales in R&D*. Our R&D spending not only exceeds many of our competitors’ retail sales in our product categories; it also allows us to invest for the long term, generating products that help us leapfrog the market. A good example is the creation of the MX Revolution mouse. We reinvented the mouse with the MX Revolution, with new mechanics, new features and new manufacturing processes. The creation of this revolutionary product was a global undertaking. The engineering and product marketing teams in Romanel-sur-Morges, Switzerland, Cork, Ireland, and Fremont, California worked closely with their industrialization colleagues in Suzhou, China, and Hsinchu, Taiwan. This global team generated their initial ideas in November 2004. They started with extensive consumer research on mouse usage patterns, polling thirty thousand users and recording over 7 million navigation events. Their efforts led to many discoveries, such as a mouse is moved about 50 feet per day on average, while the scroll wheel is spun 24 feet per day. Consumers told us that they wanted a better way to scroll through long documents, which led the team to focus on ways to improve scroll- wheel performance. The team immersed themselves in a design exploration process for the new mouse. In April 2005 the ﬁ rst cutting-edge design options were presented, with intense collaboration across the team, resulting in a ﬁ nal design draft in May 2005. To conﬁ rm we were on the right track, the design draft was presented to consumers for feed- back during the summer of 2005. Running in parallel to this process was a focus on the internal workings of the new mouse. Reinventing the wheel wouldn’t be easy: it had to be small enough to ﬁ t into the space speciﬁ ed by the designers alongside new optics and electronics and also robust enough to be manufactured in the millions. Our engineering team had generated a number of solutions over the years to existing and potential problems that had been put aside until the technology to achieve them was cost effective. Reviewing those solutions, the team came across work that had been done on application and task-aware embedded logic that would signal a tiny electric motor to retract the ratchet spring, allowing the mouse wheel to spin freely. The design of the wheel, spring and motor assembly began in the spring of 2005. The ﬁ rst demonstrations were given in late June 2005 and just two months later the ﬁ nal wheel design was approved. In November 2005 the ﬁ rst design prototype was ready and the team then focused their efforts on the industrialization challenge to allow mass production of the new mouse at low cost. The result of the team’s efforts was our proprietary, patent- protected MicroGear™ Scroll Wheel with SmartShift™ technology. This wheel allows the user to switch to free-spin mode for a faster, more productive scrolling experience. Reﬂ ecting an extraordinary global research effort involving hundreds of engineers for more than two years, the MX Revolution hit the shelves in late August 2006. The high- innovation value inherent in the MX Revolution allowed us to position the product at a suggested retail price of $99, compared to $79 for its predecessor, the MX™1000. Gross Margin Reached an All-Time High One of the highlights of our performance in FY 2007 was the substantial improvement in our GAAP gross margin, which increased by 230 basis points to 34.3 percent. This improvement was made possible by the introduction of many of our new products at higher margins than those * Non-GAAP measure excluding the cost of share-based compensation GROSS MARGIN MILLIONS $ NET CASH POSITION 40% 30% 30.9% 33.4% 33.1% 31.7% 32.2% 32.0% 34.0% 34.3% 20% 0% FY 00 01 02 03 04 05 06 07 400 350 300 250 200 150 100 50 0 -50 FY 399 231 184 144 77 40 33 -46 00 01 02 03 04 05 06 07 of the products they replaced. The focus of our product development teams on optimizing product cost paid off handsomely in a number of categories, particularly in cordless mice and desktops, PC speakers and PC gaming. Another contributor to our gross margin improvement was the cost-effective performance of our global supply chain, with our total supply chain costs increasing by only 7 percent year over year, less than half as fast as the 15 percent increase in sales. While higher ASPs clearly helped us generate sales growth, they played a minor role in our gross margin improvement. Due to consistent innovation across all price points, the distribution of our sales-per-price-band was relatively stable once again in FY 2007. This resulted primarily from generating the majority of our sales at price points below $100, where consumer price elasticity is minimal. Our business model has allowed us to avoid the precipitous price declines seen in the mobile phone or PC industries. In contrast, we’ve even been able to increase our price points for our high-end mice as each generation offered even more value to the consumer. Record Operating Margin* Coupled with Strong Investments for the Future The strong sales growth coupled with our record-breaking gross margin led to a 100 basis point improvement in our operating margin to 12.1 percent—a new company record. Our operating income grew 26 percent year over year to $250 million. At the same time, we continued to fund long-term R&D projects to develop the break- through innovation essential to generate growth in sales and proﬁ t. We also invested heavily in improving the scalability of our operations. In July 2006 we completed our most extensive company-wide project ever, the implementation of our new enterprise resource planning (ERP) system, Oracle 11i. More than 500 people contributed to the success of this critically important project. * Non-GAAP measure excluding the cost of share-based compensation 38 Percent Growth in EPS* The growth in operating proﬁ t was coupled with solid ﬁ nancial income. We generated over $9 million in other income from the sale of our investment in Anoto. Our tax rate in FY 2007 declined by 300 basis points to 11 percent. These factors contributed to the very strong net income growth of 35 percent to $245 million. Our EPS grew by 38 percent year over year to $1.27, enhanced by buying back 5.6 million of our shares for $138 million during FY 2007. Working Capital: Big Improvement We brought a renewed focus in FY 2007 to optimizing the conversion of income into cash ﬂ ow. The result was a 9 day improvement in our cash conversion cycle. The cash cycle improvement was made possible by a reduction of 4 days in our days sales outstanding and an increase of 5 days in days payables outstanding. Better working capital efﬁ ciency was a key factor in our generation of an all time high of $306 million in cash ﬂ ow from operations, which was twice as high as that of the prior year. Outlook: Growth Ahead We enter Fiscal Year 2008 well positioned for sustained growth and proﬁ tability, with an innovative and appealing product roadmap targeted at substantial growth categories, a broad and resilient product portfolio, and a strong and experienced management team focused on delivering against our targets. We believe that our investments in innovation coupled with strong secular growth trends are a promising recipe for continued double-digit growth. For Fiscal Year 2008 we target year-over-year growth of 15 percent in both sales and operating income. As pleased as we are with our results in Fiscal Year 2007, we’re excited about the opportunity to continue on our long-term double-digit growth path. CORRECTION NOTICE After the preceding document was printed, Logitech’s consolidated cash flow from operations during fiscal year 2007 was revised from the $306 million described in the document to $304 million. As a result, the statements in the document that during fiscal year 2007 Logitech’s consolidated cash flow from operations was $306 million and that cash flow from operations was more than double that of last year are incorrect. The correct cash flow from operations during fiscal year 2007 was $304 million and cash flow from operations was approximately double that of fiscal year 2006. The correct figures are reflected in Logitech’s Annual Report on Form 20-F for fiscal year 2007, which follows. The correction did not impact net income or net income per share. SAFE HARBOR STATEMENT The preceding document contains forward-looking statements, including the statements regarding expected sales and operating income growth in Fiscal Year 2008, our ability to take advantage of technology trends, product strategies, growth drivers and future webcam market growth and the timing for that growth. These forward-looking statements involve risks and uncertainties that could cause Logitech’s actual performance to differ materially from that anticipated in these forward-looking statements. Factors that could cause actual results to differ materially include: if we fail to successfully innovate in our current and emerging product categories and identify new feature or product opportunities; consumer demand for our products and our ability to accurately forecast it; the effect of pricing, product, marketing and other initiatives by our competitors, and our reaction to them, on our sales, gross margins and profitability; our webcam marketing activities not resulting in the webcam market growth we expect, or when we expect it; the sales mix among our lower- and higher-margin products and our geographic sales mix; as well as those additional factors set forth in our periodic filings with the Securities and Exchange Commission, including our annual report on Form 20-F for the Fiscal Year ended March 31, 2007. Logitech does not undertake to update any forward-looking statements. SUPPLEMENTAL FINANCIAL INFORMATION (in thousands, except per share amounts) Reconciliation of GAAP to non-GAAP Financial Measures Twelve Months Ended March 31, 2007 GAAP gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34.3% Adjustments: Effect of share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-GAAP gross margin 0.1% 34.4% GAAP research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $108,256 Adjustments: Effect of share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-GAAP research and development (3,151) $105,105 GAAP operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $230,862 Adjustments: Effect of share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,464 Non-GAAP operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $250,326 GAAP income before income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $255,557 Adjustments: Effect of share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,464 Non-GAAP income before income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $275,021 GAAP Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,709 Adjustments: Effect of share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,526 Non-GAAP Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,235 GAAP Tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-GAAP Tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1% 11.0% GAAP net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $229,848 Adjustments: Effect of share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-GAAP net income GAAP net income per share diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments: 14,938 $244,786 $ 1.20 Effect of share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-GAAP net income per share diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.07 1.27 Share-based Compensation Expense for Employee Stock Options and Employee Stock Purchases Twelve Months Ended March 31, 2007 Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Marketing and selling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax benefit Total share-based compensation expense after income taxes $ 2,077 7,167 3,151 7,069 (4,526) $14,938 We sometimes use information derived from consolidated financial information but not presented in our financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Certain of these data are considered “non-GAAP financial measures” under rules of the U.S. Securities and Exchange Commission. The adjustments between the GAAP and non-GAAP financial measures presented above consist of share-based compensation expense for employee stock options and employee stock purchases, and the related income tax effect, as recognized in accordance with Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payments” (“SFAS 123R”). Because we implemented SFAS 123R include the effect of share-based effective April 1, 2006, our financial results for prior periods do not compensation expense. Our management uses these non-GAAP measures in its financial and operational decision-making. Our management believes these non-GAAP measures, when considered in conjunction with the corresponding GAAP measures, facilitate the comparison by our investors of results for periods subsequent to our adoption of SFAS 123R, with corresponding prior periods for which SFAS 123R was not effective. T A B L E O F C O N T E N T S T A B L E D E S M A T I È R E S I N H A L T Report on Corporate Governance Logitech’s Report on Corporate Governance provides information on the Company’s structure, its Board members and executive officers, and its corporate governance practices. This Report includes information required by the directives of the SWX Swiss Exchange for SWX-listed issuers and the U.S. Securities and Exchange Commission for foreign registrants. Rapport sur la Gouvernance d’entreprise Le Rapport sur la Gouvernance d’entreprise de Logitech fournit des informations sur la structure de I’entreprise, la composition de son Conseil d’administration, ses cadres dirigeants et ses règles internes. Ce rapport contient aussi les informations requises par les directives de la Bourse suisse SWX pour les entreprises cotées et de la Securities and Exchange Commission américaine pour les émetteurs étrangers. Bericht zur Corporate Governance Der Bericht von Logitech zur Corporate Governance stellt Informationen betreffend die Struktur der Gesellschaft, die Mitglieder von Verwaltungsrat und Geschäftleitung sowie die Corporate Governance-Grundsätze zur Verfügung. Darüber hinaus sind in diesem Bericht Informationen enthalten, die gemäss den Richtlinien der SWX Swiss Exchange für an der SWX gelistete Emittenten und der U.S. Securities and Exchange Commission für kotierte ausländische Unternehmen anzugeben sind. Form 20-F Logitech’s Form 20-F is its annual report to shareholders. The Form 20-F provides information about the Company’s business and operational risks; information about its business and industry; a discussion and analysis of operating results and financial condition; and audited consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America. The Form 20-F is required by the U.S. Securities and Exchange Commission (SEC) for foreign registrants and, along with the Report on Corporate Governance, is filed with the SEC. Formulaire 20-F Le Formulaire 20-F de Logitech est le rapport annuel présenté aux actionnaires. Il donne des informations sur les risques commerciaux et opérationnels encourus par l’entreprise, sur son activité et son secteur, ainsi qu’un rapport commenté et une analyse de ses opérations. Par ailleurs il fournit des informations sur la situation financière de l’entreprise et ses résultats, ainsi que les états financiers consolidés et vérifiés, préparés conformément aux normes comptables communément admises aux États-Unis. Le Formulaire 20-F répond aux exigences de la Securities and Exchange Commission américaine envers les émetteurs étrangers. Il est soumis à cette Commission comme le Rapport sur la Gouvernance d’entreprise. “Form 20-F” “Form 20-F” von Logitech ist ihr Geschäftsbericht zuhanden der Aktionäre. “Form 20-F” enthält Informationen über die Markt- und operativen Risiken der Gesellschaft, Angaben zu Geschäftsbereichen und Branche, eine Erörterung und Analyse der operativen Ergebnisse und Finanzlage sowie geprüfte Konzernabschlüsse, die nach in den USA allgemein anerkannten Rechnungslegungsgrundsätzen erstellt wurden. “Form 20-F” wird von der U.S. Securities and Exchange Commission (SEC) von kotierten ausländischen Unternehmen verlangt und wird, gemeinsam mit dem Bericht zur Corporate Governance, der SEC eingereicht. Logitech International S.A., Apples — Swiss Statutory Financial Statements The Swiss Statutory Financial Statements provide the stand-alone audited results of Logitech’s parent company, Logitech International S.A., Apples. These financial statements and accompanying disclosures are presented in Swiss francs and are prepared in accordance with Swiss Law. Logitech International S.A., Apples — Etats financiers réglementaires suisses Les états financiers réglementaires suisses fournissent les résultats individuels et vérifiés de la maison mère de Logitech, Logitech International S.A., à Apples. Ces états financiers et les informations qui les accompagnent sont présentés en francs suisses et préparés conformément à la réglementation helvétique. Logitech International S.A., Apples — Gesetzlicher Jahresabschluss nach Schweizer Recht Im gesetzlichen Jahresabschluss nach Schweizer Recht sind die separat ausgewiesenen geprüften Ergebnisse von Logitech International S.A., Apples, der Muttergesellschaft von Logitech, enthalten. Dieser Jahresabschluss mit den damit verbundenen Angaben wird in Schweizer Franken und nach Schweizer Recht erstellt. LOGITECH INTERNATIONAL S.A. REPORT ON CORPORATE GOVERNANCE 20-F LISA Exhibit 15.1 REPORT ON CORPORATE GOVERNANCE Logitech believes that sound corporate governance practices are essential to an open and responsible corporation. Our corporate governance practices reflect a continuing commitment to corporate accountability, sound judgment, and transparency to shareholders. As a company whose securities are traded on both the SWX Swiss Exchange and the Nasdaq Global Select Market, our commitment to sound corporate governance principles is guided by the legal and regulatory requirements of both Switzerland and the United States. In addition, Logitech’s internal guidelines regarding corporate governance are provided in our Articles of Incorporation, Organizational Regulations, and Board Committee Charters. This report conforms to the requirements of the Corporate Governance Directive of the SWX Swiss Exchange and includes certain corporate governance disclosures required by the U.S. Securities and Exchange Commission. 1. Group Structure and Shareholders 1.1 Operational Group Structure The Logitech Group (also referred to as “Logitech”) is a world leader in peripherals for personal computers Internet and other digital platforms, developing and marketing innovative products in PC navigation, communications, digital music, home-entertainment control, interactive gaming and wireless devices. Our products include mice, keyboards, trackballs, 3D control devices, webcams, multimedia speakers, wireless and Internet music solutions for the home, headsets, headphones, gaming controllers, gaming accessories, and advanced remote controls for home-entertainment systems. We sell our products through a worldwide network of retail distributors and resellers, including wholesale distributors, consumer electronics retailers, mass merchandisers, specialty electronics stores, computer and telecom stores, value-added resellers, and online merchants, as well as original equipment manufacturers (“OEMs”). Our sales through our retail channels to consumers comprise the significant majority of our revenues. Logitech operates as a single industry segment, with six product business units—Control Devices, Internet Communications, Audio, Interactive Entertainment, Remote Controls, and Streaming Media Systems – which develop products and, with the assistance of our sales and marketing organization, bring them to market. These business units are under the direction of one executive who is responsible for our overall product portfolio and product strategy. The business units are responsible for product design and development, industrial design and technological innovation. Logitech’s marketing and sales organization helps define product opportunities and is responsible for building the Logitech brand and consumer awareness of our products, and for selling our products. Logitech’s retail sales and marketing activities are organized into three geographic regions: Americas (including North and South America), Europe-Middle East-Africa, and Asia Pacific. Our OEM sales team is organized as a worldwide organization with representatives in each of our three regions. Our OEM customers include the majority of the world’s largest PC manufacturers. Since 1994, we have had our own manufacturing operations in Suzhou, China, which currently produce approximately half of our products. We outsource the remaining production to contract manufacturers located in Asia. Both our in-house and outsourced manufacturing is managed by our worldwide operations group. The worldwide operations group also supports the business units and marketing and sales organizations through management of distribution centers and of the product supply chain, and the provision of technical support, customer relations and other services. Logitech International S.A. (also referred to as the “Company”), the Logitech parent company, is a joint stock company (société anonyme, Aktiengesellschaft) incorporated under the laws of Switzerland, with its CG-2 registered office located in Apples, Switzerland. The Company’s shares are listed on the SWX Swiss Exchange (Ticker: LOGN; security number: 257513) and on the Nasdaq Global Select Market (Ticker: LOGI, CUSIP H50430232). The International Securities Identification Number (ISIN) of our shares is CH0025751329. As of March 31, 2007, our market capitalization, based on outstanding shares of 182,242,981, net of treasury shares, amounted to $5.0 billion (CHF 6.2 billion). Refer to section 1.2 below for information on Logitech International S.A.’s holdings in its shares as of March 31, 2007. Logitech International S.A. directly or indirectly owns 100% of all the companies in the Logitech Group, through which it carries on its business and operations. Principal operating subsidiaries include: Logitech Inc., Logitech Europe S.A., Logitech Asia Pacific Ltd. and Logitech Technology (Suzhou) Co., Ltd. For a list of Logitech subsidiaries, refer to the table on page CG-29. None of Logitech International S.A.’s subsidiaries has securities listed on a stock exchange as of March 31, 2007. 1.2 Significant Shareholders To the knowledge of the Company, the beneficial owners holding more than 5% of the voting rights of the Company as of March 31, 2007 were as follows: Name Number of Shares(2) % of Voting Rights(3) Relevant Date Daniel Borel(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,000,000 5.7% March 31, 2007 (1) Mr. Borel has not entered into any written shareholders’ agreements. (2) In compliance with Article 20 of the Swiss Federal Act on Stock Exchanges and Securities Trading of March 24, 1995 (“SESTA”) and Article 13 of the Ordinance of the Swiss Federal Banking Commission on Stock Exchanges and Securities Trading of June 25, 1997 (“SESTO-FBC”), conversion and acquisition rights are not taken into consideration for the calculation of the relevant shareholdings, unless such rights entitle their holders to acquire, upon exercise, at least 5% of the Company’s voting rights. In compliance with Article 10 paragraph 2 of SESTO-FBC, shareholdings are calculated based on the aggregate number of voting rights entered into the Swiss commercial register. This aggregate number was 191,606,620 voting rights as of March 31, 2007. (3) SESTA requires shareholders who own voting rights exceeding certain percentage thresholds of a company incorporated in Switzerland whose shares are listed on a stock exchange in Switzerland to notify the company and the relevant Swiss exchange of such holdings. Following receipt of this notification, the company is required to inform the public in Switzerland. The Company announced in the Swiss Official Gazette of Commerce dated March 28, 2007 that the prior joint holdings of Mr. Borel in the Company were now held by him individually. During fiscal year 2007, the Company was not otherwise required to make any such announcements. On May 4, 2007 the Company announced in the Swiss Official Gazette of Commerce that its ownership of its own shares had exceeded the 5% threshold. 1.3 Cross-shareholdings Logitech has no shareholdings in companies that to its knowledge have shareholdings in Logitech. 2. Capital Structure 2.1 Share Capital As of March 31, 2007, Logitech International S.A.’s nominal share capital was CHF 47,901,655 ($39.3 million), consisting of 191,606,620 shares with a par value of CHF 0.25 each. In June 2006, the Company’s shareholders approved a two-for-one split of Logitech’s shares, which took effect on July 14, 2006. All references to share and per-share data have been adjusted to give effect to this stock split. CG-3 20-F LISA An additional 40 million shares have been authorized for issuance by the shareholders. In addition, conditional share capital designated to cover employee and director option and stock purchase plan rights amounted to CHF 15,165,465 and conditional capital designated to cover conversion rights granted in connection with the issue of convertible bonds amounted to CHF 2,725,000. Refer to section 2.2 for more information on the Company’s authorized and conditional capital. 2.2 Details on the Company’s Authorized and Conditional Share Capital Authorized share capital. Pursuant to Article 25 of the Company’s Articles of Incorporation, the Board is authorized to increase the share capital of the Company by CHF 10,000,000 through the issuance of up to 40 million shares with a par value of CHF 0.25 each, to be fully paid-in. This authorization expires at the Company’s Annual General Meeting in 2008. The Board of Directors may restrict the shareholders’ right to subscribe to the newly issued shares by preference, in particular if the shares are placed on international markets or issued in connection with an acquisition or merger. The unexercised preferential subscription rights revert to the Company and their use may be directed by the Board of Directors. The Board sets the price at which the shares will be issued, the manner in which the newly issued shares must be paid-in, and the conditions under which preferential subscription rights can be exercised. First conditional share capital. Pursuant to Article 26 of the Company’s Articles of Incorporation, the share capital of the Company may be increased by CHF 15,165,465 through the issuance of up to 60,661,860 shares with a par value of CHF 0.25 each. The purpose of this conditional share capital is to cover option or other equity rights granted or that may be granted to employees, officers and directors of Logitech under its employee equity incentive plans (refer to section 2.7 for information on Logitech’s stock purchase and stock option plans). The conditional share capital increase does not have an expiration date. The shareholders do not have the preferential right to subscribe to the newly issued shares. Second conditional share capital. Pursuant to Article 27 of the Company’s Articles of Incorporation, the share capital of the Company may be increased by CHF 2,725,000 through the issuance of up to 10,900,000 shares with a par value of CHF 0.25 each. The purpose of this conditional share capital was to cover conversion rights granted in connection with the issuance of Logitech’s convertible bonds in 2001. However, during the 2006 fiscal year the Company satisfied its conversion obligations under the convertible bonds through the delivery of treasury shares rather than the use of conditional capital. As a result, the Company expects to cancel this conditional capital in fiscal year 2008. 2.3 Changes in Shareholders’ Equity As of March 31, 2007, 2006, 2005 and 2004, balances in shareholders’ equity of Logitech International S.A., based on the parent company’s Swiss Statutory Financial Statements, were as follows (in thousands): Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Legal reserves: General reserve . . . . . . . . . . . . . . . . . . . . . . . Reserve for treasury shares . . . . . . . . . . . . . Unappropriated retained earnings . . . . . . . . As of March 31, 2007 2006 2005 2004 CHF 47,902 CHF 47,902 CHF 47,902 CHF 47,902 9,580 272,844 378,300 9,580 238,707 352,032 9,580 217,873 327,892 66,319 136,590 256,964 Total shareholders’ equity . . . . . . . . . . . . . . . . . . CHF 708,626 CHF 648,221 CHF 603,247 CHF 507,775 CG-4 During the same periods, there were no changes made to the Company’s authorized and conditional share capital. The following table shows authorized and conditional share capital as of the last four fiscal year ends: As of March 31, 2007 2006 2005 2004 Authorized share capital . . . . . . . . . . . . . . . . . . . . . . . . CHF 10,000 CHF 10,000 CHF 10,000 CHF 10,000 . . . . . . . . . . . . . . . . . . . CHF 15,165 CHF 15,165 CHF 15,165 CHF 15,165 First conditional share capital . . . . . . . . . . . . . . . . . CHF 2,725 CHF 2,725 CHF 2,725 CHF 2,725 Second conditional share capital For information on Logitech’s shareholders’ equity as of March 31, 2007 and 2006, refer to the Swiss Statutory Balance Sheets on page LISA-3. During fiscal years 2007, 2006 and 2005, the Board of Directors authorized the following share buyback programs (in thousands): Date of Announcement Approved Buyback Amount May 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . USD 250,000 June 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CHF 300,000 April 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CHF 250,000 Equivalent USD Amount(1) $250,000 $235,000 $200,000 Expiration Date June 2009 June 2008 June 2006 (1) Represents the approved buyback amount in U.S. dollars, calculated based on exchange rates on the announcement dates. The Company repurchased shares under these buyback programs as follows (in thousands): Date of Announcement Amount Repurchased During Year Ended March 31,(1) Program to date 2007 2006 2005 Shares Amount Shares Amount Shares Amount Shares Amount 20-F May 2006 . . . . . . . . . . . . . . . . . June 2005 . . . . . . . . . . . . . . . . . April 2004 . . . . . . . . . . . . . . . . . 2,726 11,286 14,974 $76,610 — $ — $ 76,610 $174,613 8,402 $236,098 $61,485 $ 66,739 $201,264 — $ — 3,874 2,726 2,884 — $ — — $ — $134,525 11,100 (1) Represents the amount in U.S. dollars, calculated based on exchange rates on the repurchase dates. 2.4 Share Categories Registered Shares. Logitech International S.A. has only one category of shares – registered shares with a par value of CHF 0.25 per share. Each of the 191,606,620 issued shares carries the same rights. There are no preferential rights. However, a shareholder must be entered in the share register of the Company to exercise voting rights and the rights deriving therefrom (such as the right to convene a general meeting of shareholders or the right to put an item on the meeting’s agenda). Refer to section 6 for an outline of participation rights of the Company’s shareholders. Each share entitles its owner to dividends declared, even if the owner is not registered in the share register of the Company. Under Swiss law, a company pays dividends upon approval by its shareholders. This request for shareholder approval typically follows the recommendation of the Board. Logitech has not paid dividends since 1996, using retained earnings to invest in the growth of the Company and, in more recent years, to repurchase the Company’s shares. LISA Unless this right is restricted in compliance with Swiss law and the Company’s Articles of Incorporation, shareholders have the right to subscribe by preference for newly issued shares. Refer to section 2.2 for a description of the provisions of the Company’s Articles of Incorporation relating to the restriction of the shareholders’ preferential subscription rights. CG-5 The Company has not issued non-voting shares (“bons de participation,” “Partizipationsscheine”). Logitech ADSs and Share for ADS Exchange. Until October 2006, Logitech American Depositary Shares, or ADSs, traded on the Nasdaq Global Select Market. Each ADS represented one Logitech share. On October 23, 2006 each outstanding ADS was exchanged on a mandatory basis for one Logitech share, the Logitech ADSs were delisted from Nasdaq, and Logitech shares commenced trading on the Nasdaq Global Select Market. As a result, the same Logitech shares that previously traded solely on the SWX Swiss Exchange are now traded on both the SWX and the Nasdaq Global Select Market. 2.5 Bonus Certificates The Company has not issued certificates or equity securities that provide financial rights in consideration for rendered or claims waived (referred to as “bonus certificates,” “bons de jouissance,” or services “Genussscheine”). 2.6 Limitations on Transferability and Nominee Registration The Company and its agent, The Bank of New York, as US transfer agent, maintain a share register that lists the names of the registered owners of our shares. Registration in our share register occurs upon request and is not subject to any conditions. Nominee companies and trustees can be entered into the share register with voting rights. There are no restrictions on transfers of shares under our Articles of Incorporation or Swiss law. However, only holders of shares that are recorded in our share register are recognized as shareholders, and a transfer of shares reflected in our share register is recognized by us only to the extent we are notified of the transfer. Refer to section 6.1 for the conditions for exercise of shareholders’ voting rights. 2.7 Conversion and Option Rights Conversion Rights. Logitech does not have any outstanding bonds or other publicly traded securities with conversion rights. Warrants. Logitech has not issued warrants on its shares. Employee Stock Incentive and Stock Purchase Plans. Logitech believes equity compensation is an important part of attracting and retaining high-caliber employees and of aligning the interests of management and the directors of the Company with the interests of the shareholders. Accordingly, Logitech maintains stock incentive and stock purchase plans for its employees. 2006 Stock Incentive Plan. The Logitech International S.A. 2006 Stock Incentive Plan provides for the grant to eligible employees and non-employee directors in the Logitech Group of stock options, stock appreciation rights, restricted stock and restricted stock units, which are bookkeeping entries reflecting the equivalent of shares. As of March 31, 2007, the Company has granted only stock options under the 2006 Plan and has made no grants of restricted shares, stock appreciation rights or stock units. Stock options granted under the 2006 Plan generally will have terms not exceeding ten years and will be issued at exercise prices not less than the fair market value on the date of grant. Awards under the 2006 Plan may be conditioned on continued employment, the passage of time or the satisfaction of performance vesting criteria. The 2006 Plan expires on June 16, 2016. An aggregate of 14,000,000 shares is reserved for issuance under the 2006 Plan. As of March 31, 2007, a total of 12,006,900 shares were available for issuance under this plan. 1996 Stock Plan. Under the 1996 Stock Plan, the Company granted options for shares. Options issued under the 1996 Plan generally vest over four years and remain outstanding for periods not to exceed ten years. Options were granted at exercise prices of at least 100% of the fair market value of the shares on the date of grant. The CG-6 Company made no grants of restricted shares, stock appreciation rights or stock units under the 1996 Plan. No further awards will be granted under the 1996 Plan. 1988 Stock Option Plan. Under the 1988 Stock Option Plan, options to purchase shares were granted to employees and consultants at exercise prices ranging from zero to amounts in excess of the fair market value of the shares on the date of grant. The terms and conditions with respect to options granted were determined by the Board of Directors who administered this plan. Options generally vested over four years and remained outstanding for periods not exceeding ten years. Further grants may not be made under this plan and as of March 31, 2007, there were no options outstanding under this plan. As of March 31, 2007, there were a total of 18,875,722 shares subject to outstanding options granted under all plans. Each option entitles the holder to purchase one share of Logitech International S.A. at the exercise price. Of these options, 10,436,970 were exercisable, with the balance subject to continued vesting over time. The exercise prices of the currently outstanding options range from $1.00 to $29.99. Logitech shareholders do not have preferential rights to subscribe to employee options. Refer to section 5.6 below and Note 4 to the Consolidated Financial Statements for more information on the Company’s outstanding stock options. Employee Share Purchase Plans. Logitech maintains two employee share purchase plans, one for employees in the United States and one for employees outside the United States. The plan for employees outside the United States is named the 2006 Employee Share Purchase Plan (Non-U.S.) (“2006 ESPP”) and was approved by the Board of Directors in June 2006. The plan for employees in the United States is named the 1996 Employee Share Purchase Plan (U.S.) (“1996 ESPP”). The 1996 ESPP was the worldwide plan until the adoption of the 2006 ESPP in June 2006. Under both plans, eligible employees may purchase shares with up to 10% of their earnings at the lower of 85% of the fair market value at the beginning or the end of each six-month offering period. Purchases under the plans are limited to a fair value of $25,000 in any one year, calculated in accordance with U.S. tax laws. There are two offering periods, each consisting of a six-month period during which payroll deductions of employee participants are accumulated under the share purchase plan. Subject to continued participation in these plans, purchase agreements are automatically executed at the end of each offering period. A total of 12,000,000 shares have been reserved for issuance under both the 1996 and 2006 ESPP plans. As of March 31, 2007, a total of 1,479,217 shares were available for issuance under these plans. 20-F Although the Company has been authorized by its shareholders to use conditional capital to meet its obligations to deliver shares as a result of employee purchases or exercises under the above plans, the Company has for some years used shares held in treasury to fulfill its obligations under the plans. 3. The Board of Directors The Board of Directors is elected by the shareholders and holds the ultimate decision-making authority within the Company, except for those matters reserved by law or by the Company’s Articles of Incorporation to its shareholders or for those that are delegated to the Executive Officers under the Organizational Regulations. The Board makes resolutions through a majority vote of the members present at the meetings. In the event of a tie, the vote of the Chairman decides. The Company’s Articles of Incorporation set the minimum number of directors at three. The Company had LISA eight Directors as of May 1, 2007. 3.1 Members of the Board Gary F. Bengier, U.S. national, has been a non-executive Director of the Company since June 2002 and is Lead Independent Director. In addition to serving on Logitech’s board, Mr. Bengier also serves on the Board of CG-7 Trustees of the Santa Fe Institute, a U.S. private, non-profit, multidisciplinary research and education center. He also serves as Chair of the Bengier Foundation, a private charitable foundation. Previously, Mr. Bengier served as Senior Vice President, Strategic Planning and Development of eBay Inc., a U.S.-based on-line marketplace, from January 2001 until November 2001, and prior to that, as eBay’s Chief Financial Officer from November 1997 to January 2001. From February 1997 to October 1997, Mr. Bengier was Vice President and Chief Financial Officer of Vxtreme, Inc., a U.S. developer of Internet video streaming products. Prior to that time, Mr. Bengier was Corporate Controller at Compass Design Automation, a U.S. publisher of electronic circuit design software, from February 1993 to February 1997. Mr. Bengier has also held senior financial positions at Kenetech Corp., a U.S. energy services company, Qume Corp., a U.S. computer peripheral company, and Bio-Rad Laboratories, a U.S. life sciences company. He also spent several years as a management consultant for Touche Ross & Co., a U.S. consulting firm. Mr. Bengier holds a BBA degree in Computer Science and Operations Research from Kent State University and an MBA degree from Harvard Business School. Daniel Borel, Swiss national, Chairman of the Board and executive board member, is a founder of the Company. Mr. Borel assumes a leading role in mid- and long-term strategic planning and the selection of top-level management, and he supports major transaction initiatives of Logitech. Mr. Borel has been the Chairman of the Board since May 1988. From July 1992 to February 1998, he also served as Chief Executive Officer. He has held various other executive positions with Logitech. Mr. Borel holds an MS degree in Computer Science from Stanford University and a BE degree in Physics from the Ecole Polytechnique Fédérale, Lausanne, Switzerland. Matthew Bousquette, U.S. national, has been a non-executive Director of the Company since June 2005. He is currently the Chairman of the Board of Enesco LLC, a U.S.-based producer of giftware, and home and garden décor products. He is the former president of the Mattel Brands business unit of Mattel, Inc. Mr. Bousquette joined Mattel as senior vice president of marketing in December 1993, and was promoted to successively more senior positions at Mattel, including general manager of Boys Toys in July 1995, executive vice president of Boys Toys in May 1998, president of Boys/Entertainment in March 1999, and president of Mattel Brands from February 2003 to October 2005. Mr. Bousquette’s previous experience included various positions at Lewis Galoob Toys, Teleflora and Procter & Gamble. Mr. Bousquette earned a BBA degree from the University of Michigan. Erh-Hsun Chang, Taiwan national, has been a non-executive Director of the Company since June 2006. Until April 2006, Mr. Chang was the Company’s Senior Vice President, Worldwide Operations and General Manager, Far East. Mr. Chang first joined Logitech in 1986 to establish its operations in Taiwan. After leaving the Company in 1988, he returned in 1995 as Vice President, General Manager, Far Eastern Area and Worldwide Operations. In April 1997, Mr. Chang was named Senior Vice President, General Manager, Far Eastern Area and Worldwide Operations. Mr. Chang’s other business experience includes tenure as Vice President, Manufacturing Consulting at KPMG Peat Marwick, a global professional services firm, between 1991 and 1995, and as Vice President, Sales and Marketing, Power Supply Division, of Taiwan Liton Electronics Ltd., a Taiwanese electronics company, in 1995. Mr. Chang holds a BS degree in Civil Engineering from Chung Yuang University, Taiwan, an MBA degree in Operations Management from the University of Dallas, and an MS degree in Industrial Engineering from Texas A&M University. Mr. Chang is also Vice Chairman of the Company’s subsidiary in Taiwan. Kee-Lock Chua, Singaporean national, has been a non-executive member of Logitech´s board of directors since 2000. He is the President and Executive Director of Biosensors International Group, Ltd., a developer and manufacturer of medical devices used in interventional cardiology and critical care procedures. Previously, from 2003 to 2006, Mr. Chua was a managing director of Walden International, a U.S.-headquartered venture capital firm. From 2001 to 2003, Mr. Chua served as deputy president of NatSteel Ltd., a Singaporean industrial products company active in Asia Pacific. From 2000 until 2001, Mr. Chua was the president and chief executive officer of Intraco Ltd., a Singapore-listed trading and distribution company. Prior to joining Intraco, Mr. Chua was the president of MediaRing.com Ltd., a Singapore-listed company providing voice-over-Internet services. CG-8 Mr. Chua holds a BS degree in Mechanical Engineering from the University of Wisconsin, and an MS degree in Engineering from Stanford University. Guerrino De Luca, Italian national, joined the Company as President and Chief Executive Officer in February 1998, and became an executive member of the Board of Directors in June 1998. Mr. De Luca is responsible for the worldwide affairs and operations of Logitech. He manages both the strategic activities of the Company as well as the day-to-day operations. Prior to joining Logitech, Mr. De Luca served as Executive Vice President of Worldwide Marketing for Apple, Inc. from February 1997 to September 1997, and as President of Claris Corporation, a U.S. personal computing software vendor, from May 1994 to February 1997. Prior to joining Claris, Mr. De Luca held various positions with Apple in the United States and in Europe. Mr. De Luca holds a BS degree in Electronic Engineering from the University of Rome, Italy. Shin’ichi Okamoto, Japanese national, has been a non-executive Director of the Company since June 2004. Since September 2003, Mr. Okamoto has been a research and development consultant. Prior to that, he served in executive and management positions with Sony Computer Entertainment Inc., the interactive gaming division of Sony Corporation, a Japanese consumer electronics company. During his time with Sony, Mr. Okamoto served as the Chief Technology Officer from April 2001 to August 2003, Senior Vice President of Research and Development from April 1999 to September 2002, Vice President of Software Development from October 1998 to April 1999, and Director of Development from December 1994 to October 1998. Mr. Okamoto holds a BS degree and an MS degree in Chemistry from Waseda University in Tokyo. Monika Ribar, Swiss national, has been a non-executive Director of the Company since June 2004. Since October 2006 Ms. Ribar has served as the President and Chief Executive Officer of the Panalpina Group, a Swiss freight forwarding and logistics services provider. She has been a member of Panalpina’s executive board since February 2000, and served as Panalpina’s Chief Financial Officer from June 2005 to October 2006, and as its Chief Information Officer from February 2000 to June 2005. From June 1995 to February 2000, she served as Panalpina’s Corporate Controller, and from 1991 to 1995 served in project management positions at Panalpina. Prior to joining Panalpina, Ms. Ribar worked at Fides Group (now KPMG Switzerland), a professional services firm, serving as Head of Strategic Planning, and was employed by the BASF Group, a German chemical products company. Ms. Ribar holds a Masters degree in Economics and Business Administration from the University of St. Gallen, Switzerland. 20-F Non-executive Board Members Messrs. Bengier, Bousquette, Chua, Okamoto and Ms. Ribar have never had management responsibility at Logitech or at any of its subsidiaries, and do not have any immediate family members who are employees of Logitech. The Board has determined that they are independent Directors under the rules of the Nasdaq Stock Market and under the Swiss Code of Best Practice for Corporate Governance. Mr. Chang is a former executive of the Company. Although he is a non-executive Board member he is not currently considered an independent member of the Board. None of the non-executive Directors has significant business connections with Logitech or any of its subsidiaries. Changes to the Board At Logitech’s Annual General Meeting on June 20, 2007 shareholders will be asked to elect two new non-executive directors, Ms. Sally Davis and Mr. Robert Malcolm for 3-year terms, and will be asked to re-elect Ms. Ribar, Mr. De Luca and Mr. Borel for 3-year terms. Mr. Okamato is retiring from the Board after his 3-year term of office expires in 2007. If all nominees are elected, the size of Logitech’s Board of Directors will increase from eight members to nine members. LISA Sally Davis, British national, is a nominee to the Board of Directors. Ms. Davis was appointed as the Chief Portfolio Officer of British Telecom in May 2005. Reporting to the Chief Executive of the BT Group, Ms. Davis CG-9 is responsible for leading the transformation of the BT product portfolio to the new wave of Internet Protocol products. She had previously held senior executive roles within BT since joining the company in 1999, including President, Global Products, Global Services from 2002 to 2005, President, BT Ignite Applications Hosting from 2001 to 2002 and Director, Group Internet and Multimedia from 1999 to 2001. Before joining BT, Ms. Davis held leading roles in several major communications companies, including Bell Atlantic in the United States and Mercury Communications in the United Kingdom. Ms. Davis is a member of the Board of Directors and Chair of the Audit Committee of the Henderson Smaller Companies Investment Trust plc, a U.K. managed investment trust, and is also a member of the Board of Directors of I.Net S.p.A, an Italy-based application infrastructure provider and member of the BT Group. She holds a BA degree from University College, London. Robert Malcolm, U.S. national, is a nominee to the Board of Directors. He is the President, Global Marketing, Sales and Innovation at Diageo plc, a global premium drinks company. Reporting to the Chief Executive Officer and a Member of the Diageo Executive committee, Mr. Malcolm has worldwide responsibility for the marketing, sales and innovation functions for Diageo and direct responsibility for strategy, equity management, innovation and global orchestration for global priority brands. He joined Diageo in 1999 and his previous appointments at the company include Global Marketing Director and Global Scotch Whiskey Director at UDV, a Diageo company. He was appointed to his current position in 2000. Previous to his employment at Diageo, Mr. Malcolm held various posts at The Procter & Gamble Company from 1975 through 1999 including Vice President, General Manager Beverages, Europe, Middle East and Africa; Vice President, General Manager Arabian Peninsula, and Vice President, General Manager, Personal Cleaning Products USA. He serves on the Board of Directors of the Ad Council, a private, non-profit organization that is the leading producer of public service advertisements in the United States. He holds a BS degree and an MBA degree in Business from the University of Southern California. The Board of Directors has determined that Ms. Davis and Mr. Malcolm, if elected, will each be independent Directors under the rules of the Nasdaq Stock Market and under the Swiss Code of Best Practice for Corporate Governance. 3.2 Involvements Outside Logitech of the Members of the Board Gary F. Bengier currently serves on the Board of Trustees of the Santa Fe Institute, a U.S. private, non-profit, multidisciplinary research and education center, and is Chair of the Bengier Foundation, a private charitable foundation. Daniel Borel serves on the Board of Nestlé S.A., the Swiss food and beverage company. He also served on the board of Julius Baer Holding A.G., a Swiss banking group, until April 2007. Mr. Borel also serves on the board of Fondation Defitech, a Swiss foundation which contributes to research and development projects aimed at assisting the disabled, and as Chairman of the Board of SwissUp, a Swiss educational foundation promoting higher learning. Kee-Lock Chua serves on the Board of Biosensors International Group, Ltd., and BRC Asia Limited, both publicly traded companies in Singapore. Shin’ichi Okamoto currently serves on the Board of Directors of Fine Arch Inc., Digital Media Professional Inc. and Fixstars Inc., all privately held Japanese companies, and on the Boards of Emdigo Inc. and Azteq Mobile Corp., both privately-held U.S. companies. Monika Ribar currently serves as a Director of Julius Baer Holding A.G. Other than the current employment noted in section 3.1 and involvement noted above, no other Logitech Board member or Director-elect currently has material supervisory, management, or advisory functions outside Logitech. None of the Company’s Directors or Director-elects holds any official functions or political posts. CG-10 3.3 Cross Involvement Ms. Ribar is a member of the Board of Directors of Julius Baer Holding A.G., which is listed on the SWX Swiss Exchange. Mr. Borel also served on the Board of Directors of Julius Baer Holding A.G. until April 2007. Kris Onken, a former Chief Financial Officer of the Company, is a member of the Board of Directors of Biosensors International Group, Ltd., of which Director Kee-Lock Chua is President. Ms. Onken joined the Biosensors Board after her retirement from Logitech in 2006. 3.4 Elections and Terms of Office Directors are elected at the Annual General Meeting of Shareholders, upon proposal of the Board of Directors. The proposals of the Board of Directors are made following recommendations of the Nominating Committee. Refer to section 3.5 for more information on the Company’s Nominating Committee. If the agenda of a General Meeting of Shareholders includes an item calling for the election of directors, any shareholder may propose a candidate for election to the Board at the meeting. Also, one or more shareholders who together represent shares comprising at least the lesser of (i) one percent of the share capital or (ii) an aggregate par value of one million Swiss francs may demand that the election of directors be placed on the agenda of a meeting and propose candidates. Such requests must be made in writing and be received by the Board of Directors at least 60 days prior to the date of the meeting. Refer to section 6.4 for more information on Shareholders’ right to place items on the agenda of a General Meeting of Shareholders. Each Director is elected individually by a separate vote of shareholders for a term of 3 years and is eligible for re-election until their seventieth birthday. Directors may not seek re-election after they have reached 70 years of age, unless the Board of Directors adopts a resolution to the contrary. The retirement is effective on the date of the next Annual General Meeting of Shareholders after the Director reaches 70 years of age. A Director’s term of office as Chairman coincides with their term of office as a Director. A Director may be indefinitely re-elected as Chairman, subject to the age limit mentioned above. 20-F Although the Company’s Articles of Incorporation and Organizational Regulations do not explicitly require this, the terms of office of the Directors are staggered. Consequently, all Directors will not run for re-election at a single Annual General Meeting. The year of appointment and remaining term of office as of March 31, 2007 for each Director are as follows: Name Year First Appointed Year Current Term Expires . . . . . . . . . . . . . . . . . . . . . . Daniel Borel(1) (3) Guerrino De Luca(1) (3) . . . . . . . . . . . . . . . . . . Kee-Lock Chua(2) . . . . . . . . . . . . . . . . . . . . . . Matthew Bousquette(2) . . . . . . . . . . . . . . . . . . Gary Bengier(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monika Ribar(2) (3) Shin’ichi Okamoto(2) (4) . . . . . . . . . . . . . . . . . Erh-Hsun Chang(2) . . . . . . . . . . . . . . . . . . . . . Sally Davis(5) Robert Malcolm(5) 1988 1998 2000 2005 2002 2004 2004 2006 Annual General Meeting 2007 Annual General Meeting 2007 Annual General Meeting 2009 Annual General Meeting 2008 Annual General Meeting 2008 Annual General Meeting 2007 Annual General Meeting 2007 Annual General Meeting 2009 LISA (1) Executive member of the Board of Directors. (2) Non-executive member of the Board of Directors. (3) The terms of Mr. Borel, Mr. De Luca and Ms. Ribar expire at the 2007 Annual General Meeting, and they are being presented for re-election to the Board of Directors at that meeting. CG-11 (4) Mr. Okamoto will retire from the Board at the expiration of his current term. (5) Ms. Davis and Mr. Malcolm are being presented for election to the Board of Directors at the 2007 Annual General Meeting. 3.5 The Functioning of the Board of Directors Allocation of Powers and Responsibilities within the Board of Directors. At the last board meeting prior to each Annual General Meeting of Shareholders, the Board of Directors appoints a Chairman and a Secretary. It is not mandatory that the Secretary be a member of the Board of Directors or a shareholder. As of March 31, 2007, the Chairman was Mr. Daniel Borel and the Secretary was Ms. Catherine Valentine, the Company’s Vice President, Legal and General Counsel. The Board of Directors is responsible for supervising the management of the business and affairs of the Company. As appointed by the Board, Mr. Bengier serves as Lead Independent Director. The responsibilities of the Lead Independent Director include chairing meetings of the non-executive Directors and serving as the presiding Director in performing such other functions as the Board may direct. The Chairman sets the agenda for Board meetings. Any member of the Board of Directors may request that a meeting of the Board be convened. The Directors receive materials in advance of Board meetings allowing them to prepare for the handling of the items on the agenda. The Chairman and Chief Executive Officer recommend Executive Officers or other members of senior management who, at the invitation of the Board, attend portions of each quarterly Board meeting to report on areas of the business within their responsibility, thereby ensuring that the Board has sufficient information to make appropriate decisions. Infrequently, the Board may also receive reports from external consultants such as executive search or succession experts or outside legal experts to assist the Board on matters it is considering. In case of emergency, the Chairman of the Board may have the power to pass resolutions which would otherwise be the responsibility of the Board. Decisions by the Chairman of the Board made in this manner are subject to ratification by the Board of Directors at its next meeting or by way of written consent. Between April 1, 2006 and March 31, 2007, the Board met five times, four of which were regularly scheduled quarterly meetings and one of which was a special meeting. Each regularly scheduled quarterly Board meeting lasts a full day and all directors participate in person except in special individual circumstances. Special meetings of the Board may be held by telephone or video-conference and the duration of such meetings varies depending on the subject matters considered. The Board of Directors has adopted a policy of regularly scheduled executive sessions where the independent Directors meet in closed session to consider matters without management or non-independent Directors present. During fiscal year 2007, executive sessions of the independent Directors were held four times. Board Committees The Board has standing Audit, Compensation, Board Compensation and Nominating Committees to assist the Board in carrying out its duties. Each Committee has a written charter approved by the Board. Their chairs determine the meeting agendas. The Board Committee members receive materials in advance of Committee meetings allowing them to prepare for the meeting. The Charters of each Board Committee are available on Logitech’s Investor Relations website at http:// ir.logitech.com. CG-12 In fiscal year 2007, the Audit Committee met nine times, the Compensation Committee met three times, the Board Compensation Committee met two times and the Nominating Committee met three times. Attendance information for these meetings as well as for meetings of the Board of Directors was as follows: Board of Directors Audit Committee Compensation Committee Board Compensation Committee Nominating Committee Daniel Borel . . . . . . . . . . . . . . . . Guerrino De Luca . . . . . . . . . . . Kee-Lock Chua . . . . . . . . . . . . . Matthew Bousquette . . . . . . . . . Gary Bengier . . . . . . . . . . . . . . . Monika Ribar . . . . . . . . . . . . . . . Shin’ichi Okamoto . . . . . . . . . . . Erh-Hsun Chang . . . . . . . . . . . . 5 5 5 5 5 5 5 4 n/a n/a 9 n/a 9 9 n/a n/a n/a n/a n/a 3 n/a 3 3 n/a 2 2 n/a n/a n/a n/a n/a n/a 3 n/a 3 n/a 3 n/a n/a n/a Audit Committee The Audit Committee is appointed by the Board to assist the Board in monitoring the Company’s financial accounting, controls, planning and reporting. It is composed of only non-executive, independent Board members. Among its duties, the Audit Committee: • • • • • • reviews the adequacy of the Company’s internal controls; reviews the independence, the Company’s independent auditors, and recommends the appointment or replacement of independent auditors to the Board of Directors; fee arrangements, audit scope, and performance of reviews and approves all non-audit work to be performed by the independent auditors; reviews the scope of Logitech’s internal auditing and the adequacy of the organizational structure and qualifications of the internal auditing staff; 20-F reviews, before release, the quarterly results and interim financial data; and reviews, before release, the audited financial statements and “Operating and Financial Review and Prospects” contained in the Company’s Annual Report on Form 20-F, and recommends that the Board of Directors submit these items to the shareholders’ meeting for approval. In fiscal year 2007, the Audit Committee was composed of Mr. Bengier, Chairman, Mr. Chua, and Ms. Ribar. The Board of Directors has determined that each member of the Audit Committee meets the independence requirements of the Nasdaq Stock Market listing standards and the applicable rules and regulations of the United States Securities and Exchange Commission (“SEC”). In addition, the Board has determined that Mr. Bengier and Ms. Ribar are audit committee financial experts as defined by the applicable rules and regulations of the SEC. The Audit Committee met nine times in fiscal year 2007. Four meetings were held in person on the day prior to the regularly scheduled quarterly Board meeting, for two to three hours, and five were held by telephone before publication of the quarterly financial results and the annual report, for approximately an hour. All Audit Committee members attended each meeting. The Committee received reports and presentations before the meetings in order to allow them time to prepare adequately. At the Committee’s invitation, the Company’s Chief Financial Officer and Corporate Controller attended each meeting, and representatives from the Company’s external auditors attended eight meetings. In addition, the Company’s General Counsel participated in seven meetings, the head of Internal Audit in four meetings, and the Vice President, Tax in one meeting. Two meetings also included separate sessions with representatives of the external auditors, and five meetings included separate sessions with senior managers. LISA CG-13 Compensation Committee The Compensation Committee reviews and approves or recommends to the Board for approval the compensation of Executive Officers and Logitech’s compensation policies and programs, including share-based compensation programs and other incentive-based compensation. Within the guidelines established by the Board and the limits set forth in the Company’s employee equity plans, the Compensation Committee also has the authority to grant options to employees other than the Chief Executive Officer without further Board approval. The Committee is composed of only non-executive, independent Board members. In fiscal year 2007, the Compensation Committee consisted of Mr. Bousquette, Chairman, Mr. Okamoto and Ms. Ribar, who each meet the independence requirements of the Nasdaq Stock Market listing standards. The Compensation Committee met three times in fiscal year 2007, with the Company’s Vice President of Human Resources participating. All meetings were held in person and lasted approximately one hour and a half. All Compensation Committee members attended each meeting. In addition to its regular meetings, typically each month the Committee considers option grants to the Company’s employees for approval by written consent. The Committee took eight such actions by written consent during fiscal year 2007. Refer to section 5.1 for information on the Compensation Committee’s criteria and process for evaluating executive compensation. Board Compensation Committee The Board Compensation Committee establishes the compensation of the non-executive Directors. This committee consists of Mr. Borel, Chairman of the Board, and Mr. De Luca, Logitech’s President and Chief Executive Officer. The Board Compensation Committee met twice in fiscal year 2007, with the Company’s Vice President of Human Resources participating in one meeting. Each meeting lasted approximately one hour, and both Committee members attended both meetings. Nominating Committee The Nominating Committee is composed of at least three members, with the Chairman of the Board acting as chair for this committee and the other two members being non-executive, independent Directors. Among its duties, the Nominating Committee: • • • • evaluates the composition of the Board of Directors and its Committees, determines future requirements and makes recommendations to the Board of Directors for approval; determines on an annual basis the desired Board qualifications and expertise and conducts searches for potential Directors with these attributes; evaluates and makes recommendations of nominees for election to the Board of Directors; and evaluates and makes recommendations to the Board concerning the appointment of Directors to Board Committees and the selection of Board Committee chairs. The Committee may and typically does retain an executive search firm to assist with the identification and evaluation of prospective Board nominees based on criteria established by the Committee. The Nominating Committee consists of Mr. Borel, Chairman, Mr. Bengier and Mr. Chua. Upon the Committee’s recommendation of nominees for election to the Board of Directors, the nominees are presented to the full Board. The Nominating Committee met three times in fiscal year 2007, with all Committee members attending each meeting. All meetings were held in person and lasted approximately one hour. CG-14 Role of Executive Board Members Mr. Daniel Borel, the Company’s Chairman, and Mr. Guerrino De Luca, the Chief Executive Officer, are the executive members of the Board of Directors. Mr. Borel assumes a leading role in mid- and long-term strategic planning and the selection of top-level management, and he supports major transaction initiatives of Logitech. Mr. De Luca manages the day-to-day operations of Logitech, with the support of the Executive Officers. The Chief Executive Officer has, in particular, the following powers and duties: • • • • • • • • • defining and implementing short and medium term strategies; preparing the budget, which must be approved by the Board of Directors; reviewing and certifying the Company’s annual report; appointing, dismissing and promoting any employees of Logitech other than Executive Officers and the head of the internal audit function; taking immediate measures to protect the interests of the Company where a breach of duty is suspected from Executive Officers until the Board has decided on the matter; carrying out Board resolutions; reporting regularly to the Chairman of the Board of Directors on the activities of the business; preparing supporting documents for resolutions that are to be passed by the Board of Directors; and deciding on issues brought to his attention by Executive Officers. 3.6 Allocation of Powers and Responsibilities between the Board of Directors and Senior Management The Board of Directors has delegated the management of the Company to the Chief Executive Officer and the Executive Officers, except where the law or the Company’s Articles of Incorporation or Organizational Regulations provide differently. 20-F The Board of Directors has the responsibility for supervision and control of Company management. In addition to the non-transferable powers and duties of boards of directors under Swiss law, the Logitech Board of Directors also has the following responsibilities: • • • • • the signatory power of its members; the approval of the budget submitted by the Chief Executive Officer; the approval of any type of investment or acquisition not included in the approved budgets; the approval of any expenditure of more than $10 million not specifically identified in the approved budgets; and the approval of the sale or acquisition, including related borrowings, of the Company’s real estate. The detailed authorities and responsibilities of the Board of Directors, of the Chief Executive Officer and the Executive Officers are set out in the Company’s Articles of Incorporation and Organizational Regulations. Please refer to http://ir.logitech.com for copies of these documents. LISA 3.7 Supervision and Control Instruments The Board of Directors is regularly informed on developments and issues in Logitech’s business, and monitors the activities and responsibilities of the Executive Officers in various ways. • The executive members of the Board, being the Chairman and the Chief Executive Officer, are also Executive Officers, with other Executive Officers reporting to the Chief Executive Officer. As a result, CG-15 the Chairman and the Chief Executive Officer participate directly in senior management meetings at which business developments are raised and discussed. At each regular Board meeting the Chief Executive Officer reports to the Board on developments and important issues. The Chief Executive Officer also provides regular updates to the other Board members regarding Logitech’s business between the dates of regular Board meetings. The offices of Chairman and Chief Executive Officer are separated, to help ensure balance between leadership of the Board and leadership of the day-to-day management of Logitech. Executive Officers and other members of senior management, at the invitation of the Board, regularly attend portions of meetings of the Board and its Committees to report on the financial results of Logitech, the business within their responsibility, including risk management and management information systems, as well as other business matters. For further information on participation by Executive Officers and other members of senior management in Board and Committee meetings please refer to Section 3.5 above. its operations, performance and outlook, and on areas of There are regular quarterly closed sessions of the non-executive, independent members of the Board of Directors, where Logitech issues are discussed without the presence of executive or non-independent members of the Board or Executive Officers. The Board holds quarterly closed sessions, where all Board members meet without the presence of non-Board members, to discuss matters appropriate to such sessions, including organizational structure and the hiring and mandates of Executive Officers. There are regularly scheduled reviews at Board meetings of Logitech strategic and operational issues, including discussions of issues placed on the agenda by the non-executive members of the Board of Directors. The Board reviews and approves significant changes in Logitech’s structure and organization, and is actively involved in significant transactions, including acquisitions, divestitures and major investments. • • • • • • • All non-executive Board members have access, at their request, to all internal Logitech information. • The Internal Audit function, which is responsible for evaluating and monitoring the effectiveness of Logitech’s internal controls and governance processes, reports to the Audit Committee. 4. Senior Management 4.1 Members of Senior Management The members of the senior management (“Executive Officers”) of Logitech as of March 31, 2007 were as follows: Name Nationality Position Daniel Borel . . . . . . . . . . . . . Swiss Chairman of the Board Guerrino De Luca . . . . . . . . . Italian President and Chief Executive Officer, Director Mark J. Hawkins . . . . . . . . . . U.S. Sr. Vice President, Finance and Information Technology, and Chief Financial Officer David Henry . . . . . . . . . . . . . U.S. Sr. Vice President, Customer Experience and Chief Marketing Officer Junien Labrousse . . . . . . . . . . French Executive Vice President, Products Gerald Quindlen . . . . . . . . . . L. Joseph Sullivan . . . . . . . . . Robert Wick . . . . . . . . . . . . . U.S. U.S. U.S. Sr. Vice President, Worldwide Sales and Marketing Sr. Vice President, Worldwide Operations Sr. Vice President, Strategy CG-16 Daniel Borel. Refer to section 3.1 above. Guerrino De Luca. Refer to section 3.1 above. Mark J. Hawkins joined Logitech as Senior Vice President, Finance and Information Technology, and Chief Financial Officer, in April 2006. Previously he was with Dell Corporation for six years, most recently serving as Vice President of Finance for worldwide procurement and logistics and the Dell Operating Council. Prior to joining Dell, Mr. Hawkins was employed by Hewlett-Packard Company for eighteen years in finance and business-management roles in the United States and abroad. Among other assignments, he was involved in supporting the spin-off of Agilent Technologies, formed from Hewlett-Packard’s former semiconductor and instrument business. He also served on the board of directors for the HP Analytical Joint Ventures in Tokyo and Shanghai. Mr. Hawkins holds a BA degree in Operations Management from Michigan State University, and an MBA degree in Finance from the University of Colorado. He has also completed the Advanced Management Program at Harvard Business School. David Henry joined Logitech as Senior Vice President, Control Devices Business Unit, in August 2001 and was named Senior Vice President, Customer Experience and Chief Marketing Officer in March 2007. From January 2000 to June 2001, Mr. Henry served as Vice President of Business Development and Product Management of Xigo Inc., a U.S. on-line intelligence software company. From November 1997 to January 2000, Mr. Henry held various positions with Iomega, a U.S. portable storage company. His last position with Iomega was Vice President and General Manager of Magnetic Products. Mr. Henry holds a BS degree in Mechanical Engineering from Union College of Schenectady, New York. Junien Labrousse joined Logitech as Vice President of the Video Division in 1997. He was named Senior Vice President, Video Business Unit in April 2001, Senior Vice President, Entertainment and Communications in July 2005 and Executive Vice President, Products in March 2007. Prior to joining Logitech, he was Vice President of Engineering from 1995 to 1997 at Winnov LP, a U.S. company engaged in the development and marketing of multimedia products. For more than 10 years he held several engineering and management positions at Royal Philips Electronics NV, a global electronics company, in research and in the semiconductor business division. Mr. Labrousse holds an MS degree in Electrical Engineering from the Ecole Superieure d’Ingenieurs de Marseille, France and an MBA degree from Santa Clara University. 20-F Gerald Quindlen joined Logitech as Senior Vice President, Worldwide Sales and Marketing in October 2005. From August 1987 to September 2004, Mr. Quindlen worked for Eastman Kodak Company where he was most recently Vice President of Global Sales and Operations for the Consumer and Professional Imaging Division and previously held senior sales or marketing management positions in the United States, Japan and Asia Pacific. Prior to his 17 year tenure at Eastman Kodak, he worked for Mobil Oil Corporation in engineering. Mr. Quindlen holds a BS degree in chemical engineering from Villanova University in Pennsylvania, and an MBA degree in Finance from the University of Pennsylvania’s Wharton School in Philadelphia. L. Joseph Sullivan joined Logitech in October 2005 as Vice President, Operations Strategy, and was appointed Senior Vice President, Worldwide Operations in April 2006. Prior to joining Logitech, Mr. Sullivan was Vice President of Operational Excellence and Quality for Carrier Corporation, a subsidiary of United Technologies, from 2001 to 2005. Previously, he was with ACCO Brands, Inc. in engineering and manufacturing management roles from 1998 to 2001. Mr. Sullivan holds a BS degree in Marketing Management and an MBA degree in Operations Management from Suffolk University in Massachusetts. LISA Robert Wick joined Logitech as Vice President of the Audio Business Unit in March 2001, with the acquisition of Labtec Inc. He was named Senior Vice President in April 2001 and in October 2002 he was named Senior Vice President of the Audio and Interactive Entertainment Business Units. In July 2005, he was named Senior Vice President, Strategy. Prior to joining Logitech, Mr. Wick was President and Chief Executive Officer of Labtec Inc., a provider of PC speakers, headsets and microphones. Prior to joining Labtec, Mr. Wick spent CG-17 eight years at Weiser Lock, a division of Masco Corporation, a U.S. manufacturer of home improvement and building products, in various management positions including Vice President of Finance and Logistics. Mr. Wick holds a BS degree in Accounting from the University of Arizona and is a former Certified Public Accountant. 4.2 Involvements Outside Logitech of the Executive Officers Daniel Borel. Refer to section 3.2 above. Junien Labrousse served as a Director of A4Vision, Inc., a privately held U.S. high technology company from which Logitech licensed face tracking software, from March 2000 to March 2007. David Henry served as a Director of Anoto AB, a Sweden-based technology company from which Logitech licenses digital writing technology and in which Logitech had a minority equity interest, from July 2003 to June 2006. No other Logitech Executive Officer currently has supervisory, management, or material advisory functions outside Logitech. None of the Company’s Executive Officers hold any official functions or political posts. 4.3 Management Contracts Logitech has not entered into any contractual relationships regarding the management of the Company or its subsidiaries. 5. Compensation, Shareholdings and Loans 5.1 Logitech’s General Compensation Policy Logitech has designed its compensation programs to attract, develop, retain and motivate the high caliber of executives, managers and staff that is critical to the long-term success of its business. Logitech’s compensation package is composed of a base salary that is competitive with comparable companies in the industry and region, periodic cash incentive awards that are based on company performance, and long-term incentive awards comprised of stock options. Executive Compensation Programs Logitech’s compensation programs for its Executive Officers are designed to: • • • • provide compensation competitive with comparable companies in the industry and region; provide executives with competitive compensation that maintains a balance between fixed and variable compensation and places a significant portion of total compensation at risk; align executive compensation with shareholders’ interests by tying a significant portion of compensation to increasing share value; and support a performance-oriented environment that rewards superior performance. An Executive’s compensation includes the following key components: • • • base salary; short-term incentives (cash bonus programs based on financial performance); and long-term incentives (stock option awards and employee stock purchase program). CG-18 Base Salary The base salary for Executive Officers is determined on the basis of experience, individual performance, the average salary levels considered appropriate for comparable positions in the industry and the anticipated value of the executive’s future contribution to Logitech. The Compensation Committee reviews these factors in approving and recommending to the Board for ratification the Executive Officer’s base salary for each fiscal year. For newly hired personnel, the base salary of the individual at his or her prior employment is considered, as well as any unique personal circumstances that motivated the executive to leave that prior position and join Logitech. In addition, consideration is given to the competitive market for corresponding positions within comparable geographic areas and industries. In addition to a base salary, and other than one-time relocation costs or benefits, Executive Officers are eligible for the same benefits offered by the Company to non-executive employees in their jurisdiction of residence. Short-Term Incentives A significant portion of Logitech’s executive cash compensation is variable. The Chairman and the Chief Executive Officer are eligible for annual bonus incentives based on Logitech’s financial goals for the fiscal year as established by the Board at the beginning of the fiscal year. Executive Officers other than the Chairman and the Chief Executive Officer are eligible for semi-annual bonuses based on achieving pre-determined financial goals of Logitech and/or pre-determined financial goals of the division or regional entity over which the Executive has responsibility. The bonus plans include a basic reward for achieving minimum performance targets and an additional reward for performance exceeding target expectations. The Compensation Committee reviews and recommends to the Board the bonus targets for each Executive Officer at the beginning of each fiscal year. 20-F If earned, the annual bonus is paid to the Chairman and the Chief Executive Officer in one installment after the end of the fiscal year, and the semi-annual bonuses are generally paid to the other Executive Officers in November and May for the two fiscal six-month performance periods. From time to time, the Board of Directors may authorize a special cash bonus payment separate from the bonus plans based on outstanding individual performance. Long-Term Incentives Stock Options. At present, our long-term compensation to Executive Officers consists solely of stock options. Logitech provides stock option grants as part of its executive compensation package because it believes that a portion of executive compensation should be linked to increasing shareholder value. Stock options have value for an employee only if the Company’s share price increases above the exercise price of the option and the employee remains employed by the Company for the duration of the option vesting period. Options granted to Executive Officers and employees vest 25% per year over four years, with no vesting from the date of grant until the first anniversary, and thereafter vesting ratably at the end of each grant anniversary. LISA The stock options granted to Executive Officers are approved by the Compensation Committee and ratified by the Board. The number of options granted to each Executive Officer is determined based on the anticipated value of the Executive Officer’s future contribution to the Company, grant levels for comparable positions in the industry, individual performance and the anticipated cost to the Company of the grant under U.S. generally accepted accounting principles. CG-19 During 2007, stock option grants to Executive Officers and other employees were made during regularly scheduled Compensation Committee meetings or through actions taken by the Compensation Committee by written consent between the dates of meetings according to a pre-determined schedule. The exercise prices of options granted during the fiscal year were based on the closing trading price of our shares on the SWX Swiss Exchange or the Nasdaq Global Select Market on the date of grant. Employee Share Purchase Plans. Executive Officers are also eligible to participate in the Company’s Employee Share Purchase Plans, under which employees may purchase shares with up to 10% of their earnings at the lower of 85% of the fair market value at the beginning or the end of each offering period. Purchases under the plans are limited to a fair value of $25,000 in any one year, calculated in accordance with U.S. tax laws. There are two offering periods, each consisting of a six-month period during which payroll deductions of employee participants are accumulated under the share purchase plan. Deferred Compensation Plan. Executive Officers based in the United States are also eligible to participate in the Logitech Inc. Management Deferred Compensation Plan, which is an unfunded and unsecured plan that allows employees of Logitech Inc. earning more than a threshold amount the opportunity to defer U.S. taxes on their base salary and bonus compensation. Logitech does not contribute to this plan. The Logitech Inc. Management Deferred Compensation Plan is not intended to provide for the payment of above-market or preferential earnings on compensation deferred under the plan. In fiscal year 2007 three Executive Officers contributed to the plan. Four executives have balances in the plan based on contributions in the current and prior fiscal years. The Chief Executive Officer is not present at any deliberations or upon the vote of the Board to approve his salary or equity compensation. Non-Executive Director Compensation The compensation of Logitech’s non-executive Directors is established by the Board Compensation Committee (refer to section 3.5 above). The Board Compensation Committee reviews aggregate data on non-executive Director compensation of comparable companies in setting compensation for Logitech’s non-executive Directors. Under the Company’s current policy, non-executive Directors are paid an annual retainer of $25,000, or CHF 35,000 and receive $2,000, or CHF 2,500, for each board or committee meeting attended and also for each day of travel to attend board or committee meetings. The Lead Independent Director receives a further retainer of $10,000 per year. Annual service is measured between the dates of the Company’s Annual General Meetings. The cash compensation is paid in arrears to each non-executive Board member after the Company’s Annual General Meeting for their service on the Board in the prior year. All Directors are also reimbursed for business- class travel and expenses in connection with attendance at Board and Committee meetings. Each non-executive Director also receives options to purchase 30,000 of the Company’s shares upon their election to the Board for a three-year term and options to purchase 15,000 shares upon their re-election to the Board. These options are granted at the fair market value at the date of grant and become exercisable over three years in equal annual installments. Beginning with the 2007 Annual General Meeting the annual retainer for non-executive Board members will increase to $30,000, or CHF 40,000, and the Chair of the Audit Committee will receive an additional retainer of $12,000 or CHF 15,000. The additional retainer for the Lead Independent Director and the per meeting and travel days compensation for non-executive Directors will remain the same. Executive Directors do not receive any compensation for their service on the Board of Directors. CG-20 5.2 Compensation of Directors and Executive Officers The following table sets forth the compensation Logitech paid or accrued for payment to non-executive Directors and Executive Officers in all capacities for services performed in the fiscal year ended March 31, 2007 (in thousands except share and per share amounts): All non-executive Directors as a group (6 individuals)(5) All Executive Officers as a group (8 individuals)(4) Salary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bonus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Share option value(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total (including share option value) . . . . . . . . . . . . . . . $ $ 410 — — 410 $ 336 746 $ 2,954 2,599 284 5,837 4,893 10,730 Total number of options granted(3) . . . . . . . . . . . . . . . . . Exercise price in USD . . . . . . . . . . . . . . . . . . . . . . . . . . Exercise price in CHF . . . . . . . . . . . . . . . . . . . . . . . . . . Expiration year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,000 19.43 to $21.61 $ CHF 23.93 to CHF 27.03 2017 $ 612,900 20.05 to $21.61 CHF 26.09 to CHF 27.03 2017 (1) Amounts shown represent costs of relocation for two executive officers, matching contributions made by (2) (3) Logitech under its 401(k) plan and Logitech’s contributions under its pension plans. Share option values are based on the grant-date fair value of options granted during fiscal year 2007, estimated using the Black-Scholes-Merton option-pricing valuation model. The options granted provide the right to purchase one share per option at the exercise price. For Executive Officers, the options vest ratably over a four-year period from the date of grant. For non-executive Directors, the options vest ratably over a three-year period from the date of grant. Assumptions used in the calculation of share option values are presented in Note 4–Share-Based Compensation in the Notes to the Consolidated Financial Statements. The share option values are not necessarily indicative of the proceeds realizable from the exercise of the options and sale of the underlying shares or of the Company’s future share price performance. Total options granted to non-executive Directors and Executive Officers represent 25.6% of the options granted by Logitech in fiscal year 2007. The remainder of the options were granted to 463 of Logitech’s other employees. (4) Mr. Hawkins and Mr. Sullivan were each appointed Executive Officers at the beginning of fiscal year 2007 and their compensation is reflected in the table above. Ms. Kristen Onken, the Company’s former Senior Vice President and Chief Financial Officer, resigned as an Executive Officer of the Company at the beginning of fiscal year 2007 and accordingly her compensation is not reflected in the table above. Frank Gill resigned as a Director of the Company in June 2006, before the expiration of his then-current 3-year term as a Director. His partial year compensation through June 2006 is reflected in the table above. (5) For further information regarding Mr. De Luca’s compensation, refer to section 5.9 “Highest Total Compensation.” 20-F There were no other Director or Executive Officer resignations or additions during fiscal year 2007. No additional fees or compensation have been paid during fiscal year 2007 to any Directors or Executive Officers other than as noted above. LISA During fiscal year 2007 Logitech paid no special compensation or severance payments to any Director or Executive Officer that resigned or otherwise left Logitech in fiscal year 2007. Logitech has entered into indemnification agreements with its Directors and Officers. These agreements indemnify Directors and Officers to the extent permitted by law against expenses and liabilities incurred in legal CG-21 proceedings that may arise by reason of their status or service as Directors or Officers. Logitech believes that these agreements are necessary to attract and retain qualified Directors and Officers. At present, there is no pending litigation or proceeding involving any Director or Officer of Logitech as to which indemnification will be required or permitted. The Company is not aware of any threatened litigation or proceedings that might result in a claim for indemnification. Logitech currently maintains Director and Officer Liability insurance to insure its Directors and Officers against certain liabilities arising from their status or service as Directors or Officers. 5.3 Compensation to Former Directors and Executive Officers During fiscal year 2007, Logitech did not grant, directly or indirectly, compensation such as fees, salaries, credits, bonuses or benefits in kind to former non-executive Directors or Executive Officers that resigned or otherwise left Logitech before fiscal year 2007. 5.4 Grant of Shares to Directors and Executive Officers During fiscal year 2007, Logitech did not grant shares of the Company to any of its non-executive Directors or Executive Officers. 5.5 Share Ownership of Directors and Executive Officers The following table presents information as of March 31, 2007 regarding the ownership of Logitech International S.A.’s shares by non-executive Directors and Executive Officers: Name Number of Shares % of Voting Rights(1) All non-executive Directors as a group (6 individuals) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . All Executive Officers as a group (8 individuals) 220,300 11,316,142 0.11% 5.91% (1) In accordance with Article 10 paragraph 2 of SESTO-FBC, the shareholding percentage is calculated based on the aggregate number of voting rights entered into the Swiss commercial register, which was 191,606,620 as of March 31, 2007. The Board of Directors adopted share ownership guidelines for members of the Board of Directors effective June 2006. Under the guidelines Directors are required to own at least 5,000 Logitech shares. Directors are required to achieve the guideline within three years of joining the Board, or, in the case of Directors serving at the time the guidelines were adopted, within three years of the effective date of adoption of the guidelines. The guidelines will be adjusted to reflect any share splits or other capital adjustments, and will be re-evaluated by the Board from time to time. CG-22 5.6 Option Ownership of Directors and Executive Officers The following tables present information as of March 31, 2007 regarding the option ownership for shares of Logitech International S.A. by Logitech’s non-executive Directors and Executive Officers. Refer to section 2.7 for a description of Logitech’s employee equity compensation plans. Options held by non-executive Directors (in thousands except share and per share amounts): Fiscal Year of Grant(4) 2001 . . . . . . . . . . . . . . . . . . . . . . . . . 2002 . . . . . . . . . . . . . . . . . . . . . . . . . 2003 . . . . . . . . . . . . . . . . . . . . . . . . . 2004 . . . . . . . . . . . . . . . . . . . . . . . . . 2005 . . . . . . . . . . . . . . . . . . . . . . . . . 2006 . . . . . . . . . . . . . . . . . . . . . . . . . 2007 . . . . . . . . . . . . . . . . . . . . . . . . . Options Held 80,000 85,000 170,000 160,000 280,000 150,000 45,000 Vested Options 80,000 85,000 140,000 100,000 166,668 45,000 — 970,000 616,668 Exercise Price $ 11.54 $ 5.22 - $ 6.25 $ 6.77 - $11.35 $ 7.76 - $10.50 $11.44 - $11.85 $15.41 - $20.25 $19.43 - $21.61 Expiration year 2011 2012 2013 2014 2015 2016 2017 Value of Options Held(1) $ 260 223 724 625 1,380 974 336 $4,522 Options held by Executive Officers (in thousands except share and per share amounts): Fiscal Year of Grant(4) 2000 . . . . . . . . . . . . . . . . . . . . . 2001 . . . . . . . . . . . . . . . . . . . . . 2002 . . . . . . . . . . . . . . . . . . . . . 2003 . . . . . . . . . . . . . . . . . . . . . 2004 . . . . . . . . . . . . . . . . . . . . . 2005 . . . . . . . . . . . . . . . . . . . . . 2006 . . . . . . . . . . . . . . . . . . . . . 2007 . . . . . . . . . . . . . . . . . . . . . Options Held(2)(3) 22,500 800,000 680,624 940,000 260,000 732,000 900,000 612,900 Vested Options 22,500 800,000 680,624 685,000 130,000 366,000 212,500 — Exercise Price $2.64 $8.48 $ 6.58 - $ 9.05 $ 6.77 - $ 8.28 $7.76 $11.44 - $12.29 $14.98 - $20.25 $20.05 - $21.61 4,948,024 2,896,624 Expiration year Value of Options Held(1) 2010 2011 2012 2013 2014 2015 2016 2017 $ 20 2,160 1,829 3,153 984 3,835 6,370 4,893 $23,244 (1) Value of options held are based on the grant-date fair value of options granted during the applicable fiscal year, estimated using the Black-Scholes-Merton option-pricing valuation model. Each option provides the right to purchase one share at the exercise price. For Executive Officers, the options vest ratably over a four-year period from the date of grant. For non-executive Directors, the options vest ratably over a three-year period from the date of grant. The value of options held is not necessarily indicative of the proceeds realizable from the exercise of the options and the sale of the underlying shares or of the Company’s future share price performance. Includes 3,163,576 options held by Mr. De Luca as of March 31, 2007. (2) (3) Mr. De Luca and Mr. Hawkins have each adopted trading plans in compliance with Swiss rules and Rule 10b5-1 under the U.S. Securities Exchange Act of 1934 that are designed to eliminate Mr. De Luca and Mr. Hawkins’ control over the timing and amount of sales of their Logitech shares. Under the plans, Mr. De Luca and Mr. Hawkins have placed some of their options with an independent third party. The third party exercises such options and sells the shares received on exercise in accordance with trading parameters established by Mr. De Luca and Mr. Hawkins at the time the plans were adopted. The ability to amend the terms of the plans is limited. Mr. De Luca has had similar plans in place for several years. (4) Erh-Hsun Chang has been a non-executive Director of the Company since June 2006. From April 1997 to April 2006, Mr. Chang was the Company’s Senior Vice President, Worldwide Operations and General Manager, Far East. The above data for all periods presented has been adjusted to give effect to his change in title from an Executive Officer to a non-executive Director. 20-F LISA CG-23 5.7 Additional Fees and Remunerations During fiscal year 2007, Logitech did not pay any fees or remunerations other than those mentioned above to its non-executive Directors and Executive Officers. 5.8 Loans or Credit Facilities In accordance with the United States Sarbanes-Oxley Act of 2002, Logitech does not extend loans or credit facilities to non-executive Directors and Executive Officers. Logitech has no such loans or credit facilities. 5.9 Highest Total Compensation In fiscal year 2007, Mr. De Luca, Logitech’s President and Chief Executive Officer, was the Director that received the highest total compensation from the Company. For his services rendered as President and Chief Executive Officer during fiscal year 2007, Mr. De Luca received the following compensation (in thousands): Salary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bonus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other benefits(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Share option value(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2007 $ 631 686 21 1,542 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,880 (1) (2) Includes 401(k) matching contributions. In April 2006, Mr. De Luca received an option grant for 200,000 shares. The options were granted at an exercise price of $20.05 per share, which was the fair market value of the Company’s shares on the date of grant. Each option provides the right to purchase one share at the exercise price. The share option value of the grant is based on its grant-date fair value, estimated using the Black-Scholes-Merton option-pricing valuation model, of $1.5 million or $7.71 per share. The options vest ratably over a four-year period from the date of grant. Assumptions used in the calculation of share option values are presented in Note 4–Share- Based Compensation in the Notes to the Consolidated Financial Statements. The share option value is not necessarily indicative of the proceeds realizable from the exercise of the options and the sale of the underlying shares or of the Company’s future share price performance. Mr. De Luca did not receive any compensation for his service rendered as a Director. 6. Shareholders’ Participation Rights 6.1 Exercise and Limitations to Shareholders’ Voting Rights Each share confers the right to one vote at the General Meeting of Shareholders. There are no limitations to the number of voting rights that a shareholder or group of shareholders is entitled to exercise, and there are no preferential voting rights. To exercise voting rights at the General Meeting of Shareholders, a shareholder must have registered their shares by the date the notice convening the General Meeting of Shareholders is sent. Refer to section 2.6 for more information on the registration process. Any shareholder may be represented at a meeting by a person of its choice who need not be a shareholder of the Company. The power of attorney must be made in writing. The use of a form prepared by the Company may be required. There are currently no limitations under Swiss law or in the Company’s Articles of Incorporation restricting the rights of shareholders outside Switzerland to hold or vote Logitech shares. CG-24 6.2 Shareholders’ Resolutions for which a Particular Majority is Required In general, the resolutions of the General Meeting of Shareholders are passed with a simple majority of the votes cast. However, the following resolutions may only be passed with a majority of two-thirds of the votes represented. • • • • • • • • • change in the Company’s corporate purpose; creation of shares with privileged voting rights; restriction of the transferability of the shares; creation of authorized or conditional capital; capital increases to be paid-in by means of existing reserves, against contributions in kind, or conducted with a view to the acquisition of specific assets; grant of special benefits; suppression or limitation of the shareholders’ preferential subscription right; change of the registered office of the Company; and dissolution without liquidation of the Company (merger). 6.3 Convocation of the General Meeting of Shareholders The Board of Directors generally convenes a General Meeting of Shareholders. The convocation notice is made in writing and is sent to each shareholder at the address recorded in the share register at least 20 days prior to the meeting. One or more shareholders who represent together at least 10% of the share capital of the Company may demand the Board of Directors convene a meeting. Such demands must be made in writing and received by the Board of Directors at least 60 days before the date of the proposed meeting. 20-F The Company has received an exemption as a foreign private issuer from compliance with a Nasdaq listing standard that requires that the quorum for shareholder meetings be at least 33 1⁄ 3% of the outstanding voting shares. Under Swiss law, public companies do not have specific quorum requirements for shareholder meetings. Accordingly, Logitech, like most other Swiss public companies, does not observe quorum requirements with respect to its shareholder meetings. In compliance with Swiss law, Logitech sends an invitation to all of its shareholders and publishes the notice of the meeting in the Swiss financial press. Also, to encourage attendance, Logitech holds its Annual General Meeting close to its operations in Switzerland. 6.4 Shareholders’ Right to Place Items on the Agenda of a Meeting One or more shareholders who together represent shares representing at least the lesser of (i) one percent of the share capital or (ii) an aggregate par value of one million Swiss francs may demand that an item be placed on the agenda of a meeting. A request to place an item on the General Meeting agenda must be in writing, describe the proposal and be received by the Board of Directors at least 60 days prior to the date of the General Meeting. Such requests should be addressed to: Secretary to the Board of Directors, Logitech International S.A., CH 1143 Apples, Switzerland, or c/o Logitech Inc., 6505 Kaiser Drive, Fremont, CA 94555, USA. LISA 6.5 Registration in the Company’s Share Register Registration into the Company’s share register occurs upon request and is not subject to any condition. Currently, the Company’s share register closes upon the date the notice convening a General Meeting of CG-25 Shareholders is sent and re-opens on the day after the General Meeting. As a result, only those shareholders who are registered in the share register on the day the meeting is convened have the right to vote at the meeting. At the 2007 Annual General Meeting the Board of Directors is seeking approval from the shareholders of the Company to delete the provision of the Company’s Articles of Incorporation which mandates the closing of the share register on the day such notice is sent. 7. Mandatory Offer and Change of Control Provisions 7.1 Mandatory Offer Swiss law requires that any shareholder who acquires more than 33 1⁄ 3% of the voting rights of a Swiss company whose shares are listed in whole or in part in Switzerland is required to make an offer to acquire all listed equity securities of the company at a minimum price. Logitech International S.A.’s Articles of Incorporation do not remove this requirement. The Articles do not increase the participation threshold above which an offer must be made. Consequently, any person having acquired more than a third of the Company’s voting rights will be required to make an offer for all outstanding shares of the Company. 7.2 Change of Control Provisions Logitech’s Executive Officers generally have Change of Control Severance Agreements with Logitech. Under the terms of these agreements, if the Executive Officer’s employment is involuntarily terminated or they are demoted within 12 months after a change in control of Logitech, the executive would receive his or her base salary, annual or semiannual bonuses, and payment of health benefits for up to a year following the termination, as well as 100% vesting of all unvested stock options. In the case of a demotion, the Executive Officer would be required to remain employed for a period of time (generally 12 months) in order to receive these benefits. There are no agreements providing for payment of any consideration to any non-executive Director upon termination of his or her services with the Company. 8. Auditors 8.1 Duration of Mandate and Term of Office of the Independent Registered Public Accounting Firm Under the Company’s Articles of Incorporation, the shareholders appoint the Company’s independent registered public accounting firm each year at the Annual General Meeting. Re-appointment is permitted. The Company’s Independent Registered Public Accounting Firm is currently PricewaterhouseCoopers SA (“PwC”), Lausanne branch, 45, Avenue C.F. Ramuz, P.O. Box 1172, CH-1001, Lausanne, Switzerland. PwC assumed its first audit mandate for Logitech in 1988. They were reappointed as the Company’s statutory and group auditors in June 2006. The responsible principal audit partner as of March 31, 2007 is Felix Roth. 8.2/3 Audit Fees In addition to the audit services PwC provides with respect to Logitech’s annual audited consolidated financial statements and other filings with the Securities and Exchange Commission, PwC has provided non-audit services to Logitech in the past and may provide them in the future. Non-audit services are services other than those provided in connection with an audit or a review of the financial statements of the Company. The Audit Committee of the Board of Directors determined that the rendering of non-audit services by PwC was compatible with maintaining their independence. During fiscal year 2007, PwC performed the following non-audit services that were approved by the Audit tax planning and compliance advice, consultations regarding stock-based compensation and Committee: expatriate tax services. CG-26 The following table presents the aggregate fees for professional audit services and other services rendered by PwC to Logitech in fiscal years 2007 and 2006 (in thousands): Audit fees(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Audit-related fees(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax fees(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . All other fees(4) $3,348 55 373 41 $1,364 219 425 54 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,817 $2,062 2007 2006 (1) Audit fees represent those fees incurred for the indicated fiscal year, regardless of when they were paid. Audit fees include group and statutory audit fees as well as the reviews of Logitech’s quarterly reports on Form 6-K. (2) Audit-related fees represent consultation on various accounting issues. (3) Tax fees represent those fees incurred for tax compliance, assistance with tax audits, tax advice and tax planning. (4) All other fees represent services provided to Logitech for expatriate services. 8.4 Supervisory and Control Instruments As appointed by the Board, the Audit Committee is responsible for supervising the performance of the Company’s Independent Registered Public Accounting Firm, and recommends the appointment or replacement of the Independent Auditors to the Board of Directors. The Company’s Independent Registered Public Accounting Firm is invited to attend all regular meetings of the Audit Committee. During fiscal year 2007, representatives from the Independent Registered Public Accounting Firm attended eight of the nine Audit Committee meetings. The Committee twice met separately with representatives of the Independent Registered Public Accounting Firm in closed sessions of Committee meetings. 20-F On a quarterly basis, PwC reports on the findings of its audit and/or review work including, beginning in fiscal year 2007, their audit of Logitech’s internal controls over financial reporting. These reports include the Independent Registered Public Accounting Firm’s assessment of critical accounting policies and practices used, alternative treatments of financial information discussed with management, and other material written communication between the Independent Registered Public Accounting Firm and management. At each quarterly Board meeting the Audit Committee reports to the full Board on the substance of the Committee meetings during the quarter. On an annual basis, the Audit Committee approves PwC’s audit plan and evaluates the performance of PwC and its senior representatives in fulfilling its responsibilities. Moreover, the Audit Committee recommends to the Board the appointment or replacement of the Independent Registered Public Accounting Firm, subject to shareholder approval. The Audit Committee reviews the annual report provided by PwC as to its independence. Refer to section 3.5 for additional information on the roles and responsibilities of the Audit Committee. Pre-approval procedures and policies The Company’s Audit Committee pre-approves all audit and non-audit services provided by its Independent Registered Public Accounting Firm. This pre-approval must occur before the auditor is engaged. Services provided by the Company’s Independent Registered Public Accounting Firm (other than those required to be provided by law) can be approved no more than 6 months in advance of the services being performed. Services that last longer than a year must be re-approved by the Audit Committee. LISA Logitech’s Audit Committee can delegate the pre-approval ability to a single independent member of the Audit Committee. The delegate must communicate all services approved at the next scheduled Audit Committee meeting. The Audit Committee or its delegate can pre-approve types of services to be performed by the CG-27 Independent Registered Public Accounting Firm with a set dollar limit per type of service. The Vice President, Corporate Controller is responsible for ensuring that the work performed is within the scope and dollar limit as approved by the Audit Committee. Management must report to the Audit Committee the status of each project or service provided by the Independent Auditors. 9. Information Policy The Company reports its financial results quarterly with an earnings press release. Quarterly financial results are scheduled to be released as follows: Q1FY08 Earnings Release and Conference Call Q2FY08 Earnings Release and Conference Call Q3FY08 Earnings Release and Conference Call Q4FY08 Earnings Release and Conference Call . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . July 19, 2007 October 18, 2007 January 17, 2008 April 17, 2008 The Company’s 2007 Annual General Meeting is to be held June 20, 2007 at Palais de Beaulieu in Lausanne, Switzerland. All registered shareholders and all shareholders in the United States that hold their shares through a U.S. bank or brokerage or other nominee receive a copy of the Logitech annual report. It contains an overview of Logitech’s business in the fiscal year, audited financial statements for the group and the Company, and other key financial and business information. Logitech holds public conference calls after our quarterly earnings releases to discuss the results and present an opportunity for institutional analysts to ask questions of the Chief Executive Officer and Chief Financial Officer. Logitech also holds twice-annual analyst days where senior management present reviews of Logitech’s business. These events are webcast and remain available on Logitech’s Investor Relations website for a period of time after the events. Logitech senior management also regularly participates in institutional investor seminars and roadshows, many of which are also webcast. In addition, Logitech publishes press releases upon occurrence of significant events within Logitech (referred to as “ad hoc” releases). Shareholders and members of the public may elect to receive e-mails when Logitech issues ad hoc or other press releases by subscribing through http://ir.logitech.com/alerts.cfm. Logitech also maintains an investor relations website that provides an archive of its earnings and other press releases, annual reports, earnings release schedule, information regarding annual general meetings, further information on corporate governance, and other information regarding the Company. The website is available at http://ir.logitech.com. For no charge, a copy of the Company’s annual reports and filings made with the U.S. Securities and Exchange Commission can be requested by contacting our Investor Relations department: Logitech Investor Relations 6505 Kaiser Drive Fremont, CA 94555 USA Main 510-795-8500 e-mail: investorrelations@logitech.com The Company has reporting requirements under Swiss law and the regulations of the SWX Swiss Exchange, and to the U.S. Securities and Exchange Commission. Reports on transactions in Logitech securities by members of Logitech’s Board of Directors and Executive Officers that are published by the SWX Swiss Exchange may be accessed at http://www.swx.com/admission/being_public/mtrans/publication_en.html. Reports submitted to the SEC may be downloaded from http://www.sec.gov. CG-28 LOGITECH INTERNATIONAL S.A. Consolidated Subsidiaries Jurisdiction of Incorporation Group Holding % Share Capital Name of Subsidiary EUROPE 3Dconnexion France SARL . . . . . . . . . France 3Dconnexion GmbH . . . . . . . . . . . . . . . Federal Republic of Germany 3Dconnexion Holding S.A. . . . . . . . . . . Switzerland 3Dconnexion Polska Sp z.o.o . . . . . . . . Poland 3Dconnexion (U.K.) Limited . . . . . . . . United Kingdom Labtec Europe S.A. . . . . . . . . . . . . . . . . Switzerland Logi Trading and Services Limited Liability Company . . . . . . . . . . . . . . Hungary Jersey, Channel Islands . . . . . . Czech Republic . . . . . . . . . . . . . . Switzerland Logitech UK Limited . . . . . . . . . . . . . . United Kingdom Logitech (Jersey) Limited . . . . . . . . . . . Logitech 3D Holding GmbH . . . . . . . . Federal Republic of Germany Logitech Czech Republic, s.r.o. Logitech Espana BCN SL . . . . . . . . . . . Spain Logitech Europe S.A. SAS Logitech France . . . . . . . . . . . . . . Republic of France Logitech GmbH . . . . . . . . . . . . . . . . . . Federal Republic of Germany Logitech Ireland Services Limited . . . . Logitech Italia SRL . . . . . . . . . . . . . . . . Republic of Italy Logitech Nordic AB . . . . . . . . . . . . . . . Sweden Logitech Benelux B.V. . . . . . . . . . . . . . Kingdom of the Netherlands Logitech Poland Spolka z.o.o. Logitech S.A. Logitech Austria GmbH . . . . . . . . . . . . Austria Logitech Middle East FZ-LLC . . . . . . . United Arab Emirates Logitech (Streaming Media) SA . . . . . . Switzerland . . . . . . . . . . . . . . . . . . . . Switzerland . . . . . . . Poland Ireland AMERICAS . . . . . . . . . . . . . . . . . United States of America 3Dconnexion Inc. Logitech (Intrigue) Inc. . . . . . . . . . . . . . Canada Labtec Inc. . . . . . . . . . . . . . . . . . . . . . . . United States of America Logitech de Mexico S.A. de C.V. . . . . . Mexico . . . . . . . . . . . . . . Canada Logitech Canada Inc. Logitech Inc. . . . . . . . . . . . . . . . . . . . . . United States of America Logitech (Streaming Media) Inc . . . . . . United States of America . . . . . . . . United States of America Logitech (Slim Devices) Inc. CG-29 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 EUR EUR CHF PLZ GBP CHF HUF EUR USD USD CZK EUR CHF EUR EUR EUR EUR SEK EUR PLN CHF EUR AED CHF 25,000 27,727 100,000 50,000 1,000 150,000 3,000,000 20,000 188 28,039 200,000 50,000 100,000 182,939 25,565 3 20,000 100,000 18,151 50,000 200,000 35,000 100,000 100,000 70,708 USD 1,661,340 CAD 44,864 USD 50,000 MXN 100 CAD USD 11,522,396 10 USD 10 USD 20-F LISA LOGITECH INTERNATIONAL S.A. Consolidated Subsidiaries—(Continued) Jurisdiction of Incorporation Group Holding % Share Capital Name of Subsidiary ASIA PACIFIC LogiCool Co., Ltd. . . . . . . . . . . . . . Logitech Electronic (India) Private Limited . . . . . . . . . . . . . . . . . . . Japan India . . . . . . . . . Taiwan, Republic of China Logitech Far East, Ltd. Logitech Hong Kong Limited . . . . Hong Kong Logitech Korea Ltd. . . . . . . . . . . . . Korea Logitech Service Asia Pacific Pte. Ltd. . . . . . . . . . . . . . . . . . . . . . . . Republic of Singapore Logitech Singapore Pte. Ltd. . . . . . Republic of Singapore Logitech Technology (Suzhou) 100 100 100 100 100 100 100 JPY 155,000,000 INR 107,760 TWD 480,000,000 USD 1,282 KRW 150,144,225 USD SGD 1 500 Co., Ltd. . . . . . . . . . . . . . . . . . . . People’s Republic of China 100 USD 22,000,000 Logitech Trading (Shanghai) Co. Ltd. . . . . . . . . . . . . . . . . . . . . . . . People’s Republic of China 100 CNY 1,655,440 Suzhou Logitech Computing Equipment Co., Ltd. . . . . . . . . . People’s Republic of China 100 USD 7,500,000 Suzhou Logitech Electronic Co. Ltd. . . . . . . . . . . . . . . . . . . . . . . . People’s Republic of China 100 USD 5,000,000 Logitech Asia Logistics Limited . . . . . . . . . . . . . . . . . . . Hong Kong Logitech Asia Pacific Limited . . . . Hong Kong Logitech Australia Computer 100 100 USD USD Peripherals Pty Limited . . . . . . . Commonwealth of Australia 100 AUD Logitech (Beijing) Trading 13 13 12 Company Limited . . . . . . . . . . . People’s Republic of China 100 CNY 5,000,000 Due to local legal requirements, there are holders of nominal shares apart from Logitech. CG-30 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 20-F ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2007 Commission File Number: 0-29174 LOGITECH INTERNATIONAL S.A. (Exact name of Registrant as specified in its charter) CG Not Applicable (Translation of Registrant’s name into English) Canton of Vaud, Switzerland (Jurisdiction of incorporation or organization) Logitech International S.A. Apples, Switzerland c/o Logitech Inc. 6505 Kaiser Drive Fremont, California 94555 (510) 795-8500 (Address and telephone number of principal executive offices) Securities registered or to be registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Registered Shares par value CHF 0.25 per share Nasdaq Global Select Market Securities registered or to be registered pursuant to Section 12(g) of the Act: None Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None The number of outstanding shares of each of the issuer’s classes of capital or common stock as of March 31, 2007 was 182,242,981 registered shares. Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. È Yes ‘ No If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. ‘ Yes È No 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. È Yes ‘ No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. È Large accelerated filer ‘ Accelerated filer ‘ Non-accelerated filer registrant check mark which item the statement financial Indicate elected has to by follow. ‘ Item 17 È Item 18 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ‘ Yes È No TABLE OF CONTENTS Part I Item 1. Item 2. Item 3. Item 4. Identity of Directors, Senior Management and Advisers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Offer Statistics and Expected Timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Key Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Information on the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 4A. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 5. Item 6. Item 7. Item 8. Item 9. Operating and Financial Review and Prospects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Directors, Senior Management and Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Major Shareholders and Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Offer and Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 10. Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 11. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . Item 12. Description of Securities Other than Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Part II Item 13. Defaults, Dividend Arrearages and Delinquencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds . . . . . . . . . . . Item 15. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 16A. Audit Committee Financial Expert . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 16B. Code of Ethics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 16C. Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 16D. Exemptions from the Listing Standards for Audit Committees . . . . . . . . . . . . . . . . . . . . . . . . Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers . . . . . . . . . . . . . . . . . Part III Item 17. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 18. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 19. Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Certifications Page 4 4 5 13 32 32 50 51 52 53 56 58 60 61 61 61 62 62 63 63 63 64 64 65 66 In this document, unless otherwise indicated, references to the “Company” or “Logitech” are to Logitech International S.A., its consolidated subsidiaries and predecessor entities. Unless otherwise specified, all references to U.S. 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. 2 FORWARD-LOOKING INFORMATION This Annual Report on Form 20-F contains forward-looking statements based on beliefs of our management as of the filing date of this Form 20-F. These forward-looking statements include statements related to: • • • our business strategy for fiscal year 2008 and beyond for new areas of growth and for building on the Company’s current strengths; our business and product plans for fiscal year 2008 and evolving market trends affecting our products; and 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 for the foreseeable future. Factors that might affect these forward-looking statements include, among other things: CG • market acceptance for our products; • • • • • • the effect of pricing, product, marketing and other initiatives by our competitors and our reaction to them on our sales, gross margins, operating expenses and profitability; the impact of a failure to successfully innovate in our current and emerging product categories and identify new feature or product opportunities; consumer demand for our products and our ability to accurately forecast such demand; our ability to implement our business strategy; our ability to match production levels with product demand and to successfully coordinate worldwide manufacturing and distribution; and general economic and business conditions. The words “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “project,” “predict,” “should,” “will” and similar expressions are intended to identify such forward-looking statements. These statements reflect our views and assumptions as of the date of this Annual Report on Form 20-F. All forward-looking statements are subject to various risks and uncertainties that could cause our actual results to differ materially from expectations. The factors that could cause our actual results to differ are discussed more fully under Item 3 “Key Information – Risk Factors,” as well as elsewhere in this Annual Report on Form 20-F and in our other filings with the U.S. Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this filing. We undertake no obligation to publicly update or revise any forward-looking statements. 3 ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS Not applicable. PART I ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE Not applicable. 4 ITEM 3. KEY INFORMATION A. Selected Financial Data The financial data below should be read in conjunction with Item 5 “Operating and Financial Review and Prospects.” These historical results are not necessarily indicative of the results to be expected in the future. Consolidated statements of income and cash flow data: Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . Operating expenses: Year ended March 31, 2007 2006 2005 2004 2003 (In thousands, except per share amounts) $2,066,569 709,525 $1,796,715 574,110 $1,482,626 503,587 $1,268,470 408,922 $1,100,288 364,504 Marketing and selling . . . . . . . . . . . . . . Research and development . . . . . . . . . . General and administrative . . . . . . . . . . 272,264 108,256 98,143 221,504 87,953 65,742 200,350 73,900 57,663 156,793 61,289 45,286 Total operating expenses . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . Net income per share: 478,663 230,862 $ 229,848 375,199 198,911 $ 181,105 331,913 171,674 $ 149,266 263,368 145,554 $ 132,153 Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 1.26 1.20 $ $ 1.00 0.92 $ $ 0.84 0.77 $ $ 0.73 0.67 CG 141,194 56,195 43,233 240,622 123,882 98,843 0.54 0.49 $ $ $ Shares used to compute net income per share: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by operating activities . . . 182,635 190,991 $ 303,825 181,361 198,769 $ 152,217 177,008 198,250 $ 213,674 181,384 200,640 $ 166,460 183,955 205,638 $ 145,108 2007 2006 March 31, 2005 (In thousands) 2004 2003 Consolidated balance sheet data: Cash and cash equivalents . . . . . . . . . . . . . . . Short-term investments . . . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt, net of current maturities . . . Shareholders’ equity . . . . . . . . . . . . . . . . . . . Exchange Rates $ 196,197 $ 214,625 $1,327,463 $ $ 844,524 — $ $ 245,014 $ $1,057,064 4 $ 685,176 $ 341,277 $ 294,753 — $ — $ — $ $1,027,697 $ 147,788 $ 526,149 $ 873,920 $ 137,008 $ 457,080 $ 218,734 — $ 744,456 $ 131,615 $ 365,562 Our shares traded on the SWX Swiss Exchange are denominated in Swiss francs while our shares traded on the Nasdaq Global Select Market are denominated in U.S. dollars. Fluctuations in the exchange rate between the Swiss franc and the U.S. dollar will affect the U.S. dollar equivalent of the Swiss franc price of our shares on the SWX Swiss Exchange and, as a result, will likely affect the market price of our shares in the United States, and vice versa. 5 The following tables set forth, for the periods indicated, information concerning exchange rates between the U.S. dollar and the Swiss franc based on the noon buying rate as reported by The Bank of New York, expressed in Swiss francs per U.S. dollars. The noon buying rate is the rate in New York City for cable transfers in selected currencies as certified for customs purposes by the Federal Reserve Bank of New York. Average (1) High Low Period End Fiscal 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fiscal 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fiscal 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fiscal 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fiscal 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . CHF1.469 1.311 1.225 1.270 1.238 CHF1.674 1.418 1.320 1.326 1.304 CHF1.325 1.219 1.134 1.179 1.191 CHF1.354 1.268 1.195 1.303 1.213 (1) Represents the average of the noon buying rate on the last business day of each month during the year. Monthly Highs and Lows (over the most recent six month period): November 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . January 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . February 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . March 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . April 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . High Low CHF1.257 CHF1.225 CHF1.253 CHF1.253 CHF1.233 CHF1.225 CHF1.197 CHF1.191 CHF1.213 CHF1.219 CHF1.208 CHF1.203 As of May 1, 2007, the noon buying rate between the U.S. dollar and the Swiss franc was CHF 1.215. B. Capitalization and Indebtedness Not applicable. C. Reasons for the Offer and Use of Proceeds Not applicable. D. Risk Factors Risk Factors 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 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. In addition, a significant portion of our quarterly retail sales can occur in the last month of each quarter, further increasing the difficulty in predicting quarterly revenues and profitability. • 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 adjust our costs in response to a revenue shortfall, which could adversely affect our operating results. 6 • Fluctuations in currency exchange rates can impact our revenues, expenses and profitability because we report our financial statements in U.S. dollars, whereas we have significant transactions in other currencies. Furthermore, fluctuations in foreign currencies impact our global pricing strategy resulting in our lowering or raising selling prices in a currency in order to avoid disparity with U.S. dollar prices and to respond to currency-driven competitive pricing actions. Fluctuations in our operating results may cause volatility in the price of our shares. If we fail to successfully innovate in our current and emerging product categories, our business and operating results could suffer. The personal peripherals industry is characterized by short product life cycles, frequent new product introductions, rapidly changing technology and evolving industry standards. As a result, we must continually innovate in our current and emerging product categories, introduce new products and technologies, and enhance existing products in order to remain competitive. CG The success of our products depends on several factors, including our ability to: • • • • identify new feature or product opportunities; anticipate technology, market trends and consumer demands; develop innovative and reliable new products and enhancements in a cost-effective and timely manner; and distinguish our products from those of our competitors. If we do not execute on these factors successfully, products that we introduce or technologies or standards that we adopt may not gain widespread commercial acceptance, and our business and operating results could suffer. In addition, if we do not continue to distinguish our products, particularly our retail products, through distinctive, technologically advanced features, designs, and services, as well as continue to build and strengthen our brand recognition and our access to distribution channels, our business could be harmed. Our gross margins can vary significantly depending on the timing of our product introductions, market reaction to our products, product mix, geographic sales mix, customers and other factors. Our gross margins can vary due to consumer demand, competition, product life cycle, new product introductions, unit volumes, commodity and supply chain costs, geographic sales mix, and the complexity and functionality of new product innovations. 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 our products is less than we anticipate, or if there are product pricing, marketing and other initiatives by our competitors to which we need to react that lower our margins, then our overall gross margin will be less than we project. In addition, our gross margins vary significantly by product line 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, or to lower-margin products within product lines, our overall gross margins and our profitability may be adversely affected. For example, our gross margins are generally lower for sales to OEM customers compared with sales to our retail customers. As a result, increases in OEM sales or decreases in retail sales relative to total sales may negatively impact our gross margins. The impact of these factors on gross margins can create fluctuations in our operating results, which may cause volatility in the price of our shares. If we do not compete effectively, demand for our products could decline and our business and operating results could be adversely affected. Our industry is intensely competitive. It is characterized by short product life cycles, continual performance enhancements, and rapid adoption of technological and product advancements by competitors in our retail 7 market, and a trend of declining average selling prices in the OEM market. We continue to experience aggressive price competition and other promotional activities from our primary competitors and from less-established brands, and we may choose to adjust prices or increase other promotional activities to improve our competitive position. We may also encounter more competition if any of our competitors decide to enter other markets in which we currently operate. In addition, we have been expanding the categories of products we sell, and entering new markets, such as the market for programmable remote controls and streaming media devices. As we do so, we are confronting new competitors, many of which 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 both our retail and OEM 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 revenues and operating margins. Corded and Cordless. Microsoft is our main competitor in retail cordless (mice and desktops) and corded (mice and keyboards) categories. Microsoft’s offerings include a complete line of mice, keyboards and desktops. Microsoft has significantly greater financial, technical, sales, marketing and other resources, as well as greater name recognition and a larger customer base. We are also experiencing competition and pricing pressure for corded and cordless mice and desktops from less-established brands, in the lower-price segments, which could potentially impact our market share. The emerging notebook peripheral segment is also an area where we face aggressive pricing and promotions, as well as new competitors that have broader notebook product offerings than we do. Video. Our competitors for PC Web cameras include Creative Labs, Philips and Microsoft, whose entry into the product category made the competitive environment more intense. We are encountering aggressive pricing practices, promotions and channel marketing on a worldwide basis, which may impact our revenues and margins. Microsoft is a leading producer of operating systems and applications with which our mice, keyboards and webcams are designed to operate. As a result, Microsoft may be able to improve the functionality of its own peripherals to correspond with ongoing enhancements to its operating systems and software applications before we are able to make such improvements. This ability could provide Microsoft with significant lead-time advantages. In addition, Microsoft may be able to offer pricing advantages on bundled hardware and software products that we may not be able to offer. Gaming. Competitors for our interactive entertainment products include Intec, Mad Catz, Pelican Accessories and Saitek Industries. Our controllers for PlayStation® also compete against controllers offered by Sony. Audio. Competitors in audio devices vary by product In the PC, mobile entertainment and communication platform speaker business, competitors include Plantronics and its Altec Lansing subsidiary, Creative Labs, and Bose Corporation. In the PC and console headset, telephony and microphone business, our main competitors include Plantronics and its Altec Lansing subsidiary. With the acquisition of Slim Devices in October 2006, we expanded our audio product portfolio to include network-based audio systems for digital music. This is an emerging market, with several small competitors, as well as larger established consumer electronics companies, like Sony and Philips. line. Advanced Remote Controls. Our revenues and market share for personal peripheral devices for home entertainment systems have expanded substantially in the last year. With many companies offering universal 8 remote controls, our success will likely attract more competition. Our competitors include, among others, Philips, Universal Remote, Universal Electronics, RCA and Sony. If we do not compete effectively, demand for our products could decline, our gross margin could decrease, we could lose market share and our revenues could decline. If we do not continue to improve our product demand forecasting, our business and operating results could be adversely affected. 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 the forecasted demand. Also, actual sales volumes for individual products in our retail distribution channel can be volatile due to changes in consumer preferences and other reasons. In addition, our retail products have short product life cycles, so a failure 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. We could also frustrate our customers and lose shelf space. 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. CG Over the past few years, we have rapidly and significantly expanded the number and types of products we sell, and the geographic markets in which we sell them, and we will endeavor to further expand our product portfolio and sales reach. The growth of our product portfolio and our sales markets has increased the difficulty of accurately forecasting product demand. We have experienced large differences between our forecasts and actual demand for our products and expect differences to arise in the future. If we do not continue to improve the accuracy of our forecasts, our business and operating results could be adversely affected. Our business depends in part on access to third-party platforms or technologies, and if the access 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. In recent years we have expanded our product portfolio to include products designed for use with third-party platforms such as the Apple iPod, Microsoft Xbox™, Sony PlayStation, and the Sony PSP. The growth of our business is in part due to sales of these products. However, our business in these categories relies on our access to the platforms of third parties, which can be withdrawn, denied or not be available on terms acceptable to us. For example, licensed any manufacturer to produce third-party wireless to our knowledge Microsoft has not peripherals for use with their Xbox 360™ gaming console. 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 change without prior notice to us, which can result in our having excess inventory or lower margins. 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 if the platforms or technologies change without notice to us, our business and operating results could be adversely affected. Our principal manufacturing operations and third-party contract manufacturers are located in China, which exposes us to risks associated with doing business in that country. Our principal manufacturing operations and third-party contract manufacturers are located in China. Our manufacturing operations in Suzhou, China could be severely impacted by changes in the interpretation and 9 enforcement of legal standards, by strains on Chinese energy, transportation, communications, trade, public health and other infrastructures, by conflicts, embargoes, increased tensions or escalation of hostilities between China and Taiwan, and by other trade customs and practices that are dissimilar to those in the United States and Europe. Interpretation and enforcement of China’s laws and regulations continue to evolve, for example in the area of value-added tax (“VAT”) and tax holidays and incentives. We expect differences in interpretation and enforcement to continue in the foreseeable future. Our Suzhou facilities are managed by several of our key Taiwanese expatriate employees. The loss of these employees, either voluntarily or as a consequence of deterioration in relations between China and Taiwan, could diminish the productivity and effectiveness of our Suzhou manufacturing operations. Further, we may be exposed to fluctuations in the value of the Chinese yuan renminbi (“CNY”), the local currency of China. Significant future appreciation of the CNY could increase our component and other raw material costs, as well as our labor costs, and could adversely affect our financial results. We purchase key components and products from a limited number of sources, and our business and operating results could be harmed 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, such as micro-controllers and optical sensors, were to be delayed or constrained, we may be unable to find a new supplier on acceptable terms, or at all, or our new and existing product shipments could be delayed, any of which could harm 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. We continue to experience 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, which could adversely affect our business and operating results. If we do not successfully coordinate the worldwide manufacturing and distribution of our products, we could lose sales. Our business requires us to coordinate the manufacture and distribution of our products over much of the world. We increasingly rely on third parties to manufacture our products, manage centralized distribution centers, and transport our products. If we do not successfully coordinate the timely manufacture and distribution of our products, we may have insufficient supply of products to meet customer demand and we could lose sales, or we may experience a build-up in inventory. We rely on commercial air freight carriers, ocean freight carriers, trucking companies and other transportation companies for the movement of our products. Consequently, our ability to ship products to our distribution centers could be adversely impacted by shortages in available cargo capacity. The logistics and supply chain infrastructure in China, where our products are manufactured, has not kept pace with the rapid expansion of China’s economy, resulting in periodic capacity constraints in the transportation of goods. If we are unable to secure cost-effective freight resources in a timely manner, we could incur incremental costs to expedite delivery, which could adversely affect our gross margins, and we could experience delays in bringing our products to market, resulting in lost product sales or the accumulation of excess inventory. Air and ground transportation costs remain under upward pressure primarily due to high fuel costs. Further increases in the worldwide cost of fuel could result in higher transportation costs, which could adversely affect gross margins. A significant portion of our quarterly retail orders and product deliveries generally occur in the last month of the fiscal quarter. This places pressure on our supply chain and could adversely impact our revenues and profitability if we are unable to successfully fulfill customer orders in the quarter. 10 We conduct operations in a number of countries and the effect of business, legal and political risks associated with international operations could significantly harm us. We conduct operations in a number of countries. There are risks inherent in doing business in international markets, including: • • • • • • • • difficulties in staffing and managing international operations; compliance with laws and regulations, including environmental and tax laws, which vary from country to country and over time, increasing the costs of compliance and potential risks of non-compliance; exposure to political and financial instability, leading to currency exchange losses and collection difficulties or other losses; exposure to fluctuations in the value of local currencies; difficulties or increased costs in establishing sales and distribution channels in unfamiliar markets, with their own market characteristics and competition, particularly in Latin America, Eastern Europe and Asia; CG changes in VAT or VAT reimbursement; imposition of currency exchange controls; and delays from customs brokers or government agencies. Any of these risks could significantly harm our business, financial condition and operating results. 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, the patent rights granted will not provide competitive advantages to us, or that any of our pending or future patent applications will not be issued. 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. In addition, 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 significantly harm our business, financial condition and operating results. that Product quality issues could adversely affect our reputation and could impact our operating results. The market for our products is characterized by rapidly changing technology and evolving industry standards. To remain competitive, we must continually introduce new products and technologies. The products that we sell could contain defects in design or manufacture. Defects could also occur in the products or components that are supplied to us. 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 redesign efforts, lost revenue, loss of reputation, and significant warranty and other expenses to remedy. 11 If we do not successfully introduce and market products for notebook PCs, our business and results of operations may suffer. We have historically targeted peripherals for the PC platform, a market that is dynamically changing as a result of the increasing popularity of notebook and mobile products over desktop PCs. In our OEM channel, this shift has adversely affected our sales of OEM mice, which are sold with name-brand desktop PCs. Our OEM mice sales have historically made up the bulk of our OEM sales, and our OEM sales accounted for 11% and 12% of total revenues during fiscal year 2007 and 2006. If the desktop PC market continues to experience slower growth or decline, and if we do not successfully grow our non-mouse OEM business, our OEM revenues could be adversely affected. In our retail channels, the impact of the growing popularity of notebook PCs and mobile devices is uncertain, but may result in a decreased demand by consumers for keyboards and desktops (mouse and keyboard combination). This could negatively affect our sales of these products which would adversely affect our business and results of operations. Our effective tax rates may increase in the future, which could adversely affect our operating results. We operate in multiple jurisdictions and our profits are taxed pursuant to the tax laws of these jurisdictions. Our effective tax rate may be affected by changes in or interpretations of tax laws in any given jurisdiction, 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. The amount of income taxes we pay could be subject to ongoing audits in various jurisdictions and a material assessment by a governing tax authority could affect our profitability. If our effective tax rate increases in future periods, our operating results could be adversely affected. We are exposed to significant costs and risks associated with complying with Section 404 of the Sarbanes- Oxley Act. Section 404 of the Sarbanes-Oxley Act of 2002 requires the management of public companies in the United States to evaluate and report on the Company’s systems of internal control over financial reporting. Further, Section 404 requires the company’s independent registered public accountants to attest to and report on management’s evaluation of those controls. We have and will continue to incur significant expenses and management resources to comply with the requirements of Section 404 on an ongoing basis. In addition, the Company’s growth strategy, through innovation, product line expansion and the acquisition of complementary businesses, requires periodic changes and enhancements to our operational, financial, and management controls, and to our reporting systems and procedures. Our compliance with the annual internal control reporting requirements for each fiscal year will depend on the effectiveness of our financial reporting and data systems and controls across the Company, and future changes in our control environment that may affect those systems and controls. If we do not implement the required new or improved controls, if we encounter difficulties in their implementation or operation, or if we experience difficulty in the assimilation of acquired businesses into our internal control systems, our financial reporting could be negatively affected. Inferior internal controls or the determination that our internal control over financial reporting is not effective might cause investors to lose confidence in our reported financial information, which could cause volatility in the market price of our shares. 12 Our expansion in streaming media systems may present risks that could adversely affect the valuation of assets acquired and impact our operating results. In October 2006, we acquired Slim Devices, Inc., a privately held company specializing in network-based audio systems for digital music. Slim Devices’ products compete in the emerging market for network-based music systems. As with any emerging market, uncertainty exists concerning whether and how quickly the market will develop and evolve. Factors such as these and others could prevent us from realizing the anticipated benefits of the acquisition. The Slim Devices acquisition resulted in the recording of goodwill, which could result in potential impairment charges that could adversely affect our operating results. Acquisitions are inherently risky, and no assurance can be given that our acquisition of Slim Devices or other future acquisitions will be successful and will not adversely affect our business, operating results or financial condition. ITEM 4. INFORMATION ON THE COMPANY A. History and Development of the Company CG Logitech International S.A. was incorporated under the laws of Switzerland in 1981 as a company with indefinite duration. Our shares are listed on the SWX Swiss Exchange and the Nasdaq Global Select Market. Our registered office is CH-1143 Apples, Switzerland; and the telephone number is 41-(0)21-800-53-54. We have manufacturing facilities in Asia and offices in major cities in North America, Europe and Asia Pacific. Important Events Share for ADS Exchange In October 2006, we exchanged our Logitech shares for our Nasdaq-listed American Depositary Shares (“ADSs”) on a one-for-one basis, so that the same Logitech shares trade on the Nasdaq Global Select Market as on the SWX Swiss Exchange. Effective February 2007, Logitech became part of the Nasdaq-100 Index® and the Nasdaq-100 Equal Weighted IndexSM. Our shares also became part of the Nasdaq-100 Index Tracking Stock®. Sales Growth and Acquisitions During the past few years, we have significantly broadened our product offerings and the markets in which we sell them. During the same period, our net sales have grown significantly, from $736 million in fiscal year 2001 to $2.1 billion in fiscal year 2007. Most of this growth has been organic, a result of the Company’s own product development and marketing activities. However, our business has also grown as a result of a limited number of acquisitions that have expanded our activities into new product categories. Slim Devices – Streaming Media Systems. In October 2006, we acquired Slim Devices, Inc. (“Slim Devices”), a privately held company specializing in network-based audio systems for digital music, based in Mountain View, California. We paid $20.0 million in cash for all the outstanding shares of Slim Devices, and $0.6 million in closing and transaction costs. We also agreed to a possible performance-based payment, payable in the first calendar quarter of 2010, based on net revenues in calendar year 2009 from the sale of products and services derived from Slim Devices’ technology. The acquisition is part of our strategy to expand our presence in the digital music and home-entertainment control environment. Intrigue – Advanced Remote Controls. In May 2004, we acquired Intrigue Technologies, Inc. (“Intrigue”), a privately held provider of advanced remote controls, based in Mississauga, Canada. Under the terms of the purchase agreement, we acquired all the outstanding shares of Intrigue for $29.8 million in cash, and $1.6 million in closing and transaction costs, plus a deferred payment, estimated at March 31, 2007 to be at least $33.7 million, to Intrigue’s former shareholders based on the highest net sales from products incorporating Intrigue’s technology during any consecutive four-quarter period from April 2006 through September 2007. The acquisition was part of our strategy to pursue new opportunities in the living room environment, positioning Logitech at the convergence of consumer electronics and personal computing in the digital living room. 13 Labtec – Audio. In March 2001, we acquired Labtec Inc., a publicly traded provider of PC speakers, headsets and microphones for $73 million in cash and stock, and $3.3 million in closing and transaction costs. The acquisition strengthened our market presence in the audio interface space and furthered our expansion into markets such as gaming, digital music and mobile telephony. We have also expanded the Labtec brand to encompass additional product categories such as mice and webcams. Connectix – Web Cameras. In September 1998, we acquired the QuickCam® PC Web camera business of Connectix Corporation for $26.2 million in cash, including closing and other transaction costs. The acquisition allowed us to take advantage of new technologies in digital imaging and to become a world leader in Web cameras. Principal Capital Expenditures Our capital expenditures for property, plant and equipment for fiscal years 2007, 2006 and 2005 were $47.2 million, $54.1 million and $40.5 million. During fiscal year 2007, our investments related primarily to information system upgrades and normal expenditures for tooling costs, machinery and equipment and computer equipment and software. During fiscal years 2006 and 2005, capital expenditures were mainly for construction of a new factory in Suzhou, China as well as investments for information systems upgrades and normal expenditures for tooling costs. Our capital requirements are primarily financed through cash flow from operations. Principal Equity Investments As of March 31, 2007, the Company’s equity investments in various technology companies were immaterial. During fiscal years 2007 and 2006, we did not make any equity investments. During fiscal year 2005, we made an investment of $0.7 million. In fiscal year 2007, we sold our investment in Anoto Group AB for $24.2 million and recognized a gain of $9.1 million. In fiscal year 2006, we sold or impaired investments amounting to $1.6 million. We did not sell or impair any investments in fiscal year 2005. B. Business Overview Company Overview Logitech is a world leader in personal peripherals for personal computers and other digital platforms, developing and marketing innovative products in PC navigation, Internet communications, digital music, home- entertainment control, interactive gaming and wireless devices. Our products include mice, keyboards, trackballs, 3D control devices, webcams, multimedia speakers, wireless and Internet music solutions for the home, headsets, headphones, gaming controllers, gaming accessories, and advanced remote controls for home-entertainment systems. We sell our products through a worldwide network of retail distributors and resellers, including wholesale distributors, consumer electronics retailers, mass merchandisers, specialty electronics stores, computer and telecom stores, value-added resellers, and online merchants, as well as original equipment manufacturers (“OEMs”). Our sales through our retail channels to consumers comprise the significant majority of our revenues. In fiscal year 2007, we generated net sales of $2.1 billion, operating income of $230.9 million, and net income of $229.8 million. We design our products to be easy to install and use, and to simplify the complexity of the user interaction with technology. Often our products are the most frequent point of physical interaction between people and the digital world. Consumers buy our retail products as add-on devices to enable or improve applications that require dedicated devices, or as replacements that offer increased comfort, flexibility and functionality compared with 14 the basic peripherals that come with the platform. We also have retail products that appeal to consumers who are enriching their home-entertainment experience with an easy-to-use universal remote control that allows complete control of a home-entertainment system, or with a convenient way to stream digital music from the Internet, PC or digital music player throughout the home. Our OEM products are a frequent choice among PC manufacturers, who need high-quality, affordable, and functional personal peripherals in high volumes. Over the past 26 years, Logitech has established itself as a leader in the design, manufacturing and marketing of PC navigation devices. Building on this leadership position, over the last ten years we expanded into PC webcams, speakers, headsets, gaming devices, and personal peripherals for platforms such as gaming consoles, mobile entertainment, communication devices and home-entertainment systems. Our most recent product additions include advanced remote controls that are designed to provide simple, intuitive control of even the most elaborate entertainment system, and wireless and Internet music systems that enable consumers to stream their digital music from a PC, the Internet or a digital music player directly to their stereo or home- entertainment system. CG Products Logitech operates in a single industry segment encompassing the design, development, production, marketing and support of personal peripheral products. Most of our products share certain characteristics such as common customers, common sales channels or common company infrastructure requirements. Logitech’s personal peripheral products include PC navigation devices such as corded and cordless mice, trackballs and keyboards, and 3D control devices; Internet communication devices such as webcams and headsets; digital music devices such as speakers, headphones and wireless music systems; advanced remote controls for home entertainment control; and interactive gaming devices such as joysticks, gamepads, steering wheels and keyboards for PCs, and accessories for game consoles. Pointing Devices and Keyboards Mice Logitech offers many varieties of PC mice, sold through retail, OEM, and system builder channels. Most cordless pointing devices from Logitech use our 2.4 GHz or proprietary 27 MHz digital radio technology to transmit data to the host computer. Optical (Laser or LED) technology has substantially replaced the ball with a light beam that illuminates surfaces on which the mouse is traveling. Our introduction of the Logitech MX™1000 Laser Cordless Mouse in 2004 marked an important milestone: the first laser-based optical system. The nearly singular wavelength of laser light reveals greater surface detail, enabling laser mice to track reliably on virtually any surface. Combining laser with Logitech’s MX processing engine and Fast RFTM wireless technology, the Logitech MX1000 Laser Cordless Mouse set a new performance benchmark for responsiveness and accuracy. In fiscal year 2007, we introduced the successor to the MX1000 mouse, the Logitech® MX™ Revolution Cordless Laser Mouse. The MX Revolution mouse is the result of years of research and development, and addresses the multi-tasking PC environment with several new technology breakthroughs, including: • The MicroGearTM Precision Scroll Wheel with two modes that permit users to navigate through files faster and with more precision. In free-spin mode, the machined alloy wheel can spin for up to seven seconds, scrolling through thousands of spreadsheet rows or hundreds of word-processing pages. The click-to-click scrolling mode yields tactile feedback for each small unit of distance scrolled, allowing more precise navigation. • Logitech SmartShiftTM Technology intelligently adjusts the scroll wheel, depending on the active application or current task, from precision click-to-click mode to free-spin mode. 15 • The One-Touch Search button does away with the need to use a browser or toolbar to perform an Internet search. • Document Quick-Flip quickly moves through multiple documents open within several applications, improving user efficiency. Our mice products also include an expanded line of gaming mice, including the G5 and G7 mice for gamers, which represent several performance breakthroughs, such as the use of full-speed USB to transmit data at faster rates, 2.4 GHz digital cordless technology for a stronger wireless connection, 2000 dpi resolution for superior speed, custom weight tuning for the G5, and swappable, rechargeable lithium-ion batteries for the G7. The notebook mouse line has been enriched with the addition of the VX Revolution mouse, the V450 Laser Cordless Mouse for Notebooks, the V350 Optical Cordless Mouse for Notebooks, and the corded V150 Laser Mouse for Notebooks and V100 Optical Mouse for Notebooks. All of Logitech’s premium retail mice are bundled with Logitech SetPoint® software, enabling users to program mouse buttons for specific tasks. We also sell both corded and cordless mice designed specifically for OEM customers. Trackballs We offer several trackballs for the retail channel. All corded and cordless models use Logitech’s patented Marble® optical sensing technology, which enables reliable, accurate operation without the need to regularly clean the device to prevent buildup of dust or grease. The Cordless Optical TrackMan® trackball also features a “cruise control” scrolling feature as well as several programmable buttons to enhance usability. 3D Controllers Our 3Dconnexion subsidiary offers 3D input devices for the growing field of 3D control. In fiscal year 2007, 3Dconnexion introduced the SpaceNavigator™, intended for people using mainstream 3D applications such as Google Earth™ and Google SketchUp™. More than 300,000 professionals use 3Dconnexion controllers, including the SpacePilot, SpaceNavigator, SpaceExplorer®, and SpaceTraveler™. All 3Dconnexion controllers leverage the productivity benefits and comfort of working with two hands: one hand on the mouse to select, modify or annotate, and the other hand on the motion controller to navigate. Keyboards, Desktops and Notebook Stands Logitech offers a variety of corded and cordless keyboards and desktops (keyboard-and-mouse combinations) from the award-winning top-of-the-line rechargeable diNovo™ Edge keyboard to the basic Media™ Keyboard. The most recent addition to the award-winning diNovo line is the diNovo Edge keyboard, our first rechargeable keyboard. Less then 3⁄4 of an inch thick, the diNovo Edge combines sleek design with advanced technology, including Bluetooth® 2.0, dynamic backlighting, a touch-sensitive volume control, an integrated TouchDisc™ for controlling the computer’s cursor, and improved key travel and resistance. The diNovo Edge is marketed separately to enable the user to select their favorite mouse complement – the MX or VX Revolution. The new Cordless Desktop® MX™ 3200 Laser includes several buttons designed to help people take advantage of key Windows VistaTM features, such as Flip 3D and Search. We also introduced a new category with the Alto™ Notebook Stand, a one-piece notebook riser with an integrated, full-size keyboard. The Logitech Alto gives people the typing experience they are accustomed to having with a desktop PC, complete with a number pad, a media panel and a standard key layout, and the easy-to-set-up platform raises the monitor to eye level. 16 All premium keyboards offer Logitech’s innovative SetPoint™ software, which enables one-touch access to a variety of common tasks, including launching music software, accessing the Internet, and starting a chat with Instant Messenger software. Voice and Video Communications Web Cameras Logitech’s industry-leading QuickCam® webcams make it easy for friends and family to keep in touch by seeing and talking to each other using their computers. We work closely with leading application developers to help deliver the video communications services and software that connect consumers and create demand for webcams. In addition, our Logitech Video EffectsTM avatars and face accessories software has become a favorite application for users wishing to record and post video to Web sites, with more than 12 million downloads from www.logitech.com since its introduction in 2005. In fiscal year 2007, Logitech introduced the QuickCam Ultra Vision™ webcam, offering a true-to-life video calling experience by delivering twice the image clarity as that offered by typical webcams. This webcam features the new Logitech RightLight 2 Technology – a system of hardware and software technologies designed to optimize video settings in low-light and uneven lighting environments. CG Logitech’s performance webcams – the QuickCam Ultra Vision, QuickCam Fusion™, QuickCam Orbit™ and QuickCam Pro 5000 products – now include Logitech RightLight 2 Technology and the ability to record HD video. Our redesigned QuickCam software is included with all new webcams, complete with a new icon-based interface allowing easier access to all of the camera’s settings and features, including the popular Logitech Video Effects software. We also expanded our line of webcams for the notebook PC market with the introduction of the QuickCam Deluxe for Notebooks and QuickCam for Notebooks. PC Headsets, Microphones and VoIP Handsets We offer headsets, microphones and handsets designed for applications such as PC voice communications, Voice-over Internet Protocol (“VoIP”) applications and online gaming. The Logitech Premium Notebook Headset is designed to enhance the experience of using Internet calling applications such as Skype®, with a noise-canceling microphone, convenient in-line volume and mute controls, and the flexibility of connecting via digital USB ports or traditional analog (3.5 mm) ports. The Logitech QuickCallTM USB Speakerphone delivers premium voice quality in a speakerphone by using a two-microphone array – one on each side of the wing-shaped phone – that can capture voices and sounds from a wider area in a room, transmitting even whispers from several feet away. The Logitech Cordless Internet Handset makes using Skype on the PC as easy as using an ordinary cordless telephone, offering a crystal-clear calling experience at up to 164 feet (50 meters) from the PC. The Skype Certified™ handset supports the key Skype calling functions. Audio Speakers and Headphones Logitech designs and manufactures a wide variety of multimedia speakers, from our flagship 5.1-channel multi-platform, 505-watt Logitech® Z-5500 Digital speakers and Z-5450 Digital speakers with convenient 17 wireless rear satellite speakers – both of which work with PCs, game consoles, televisions and DVD players and feature THX certification – to high-volume, two-piece speaker systems. The flagship models have garnered multiple best-in-class awards, affirming the Logitech brand in the speaker market. In fiscal year 2007, we launched the Z-10 Interactive Speaker System, which offers an interactive, tactile and visual experience. By putting touch-sensitive controls on the face of the Z-10 speakers, an industry first, we eliminated the need for people to toggle between applications to control their music on their computer monitor. Using USB technology and software, the speakers can display track information from popular media players, including iTunes®, Windows Media® Player, Winamp, and Musicmatch®. The digital display also reveals a clock, volume levels and other system information from the PC. Logitech’s product line includes premium-performance speakers optimized for the iPod® as well as a wide variety of portable platforms, from MP3 and CD players to notebook PCs. The mm50 Portable Speakers continue to be one of the Company’s best-selling audio products. In fiscal year 2007, we extended our iPod speaker product line with the AudioStation™ and the AudioStation Express™. Logitech also offers headphones for iPod and other MP3 players, including the new Logitech FreePulse™ Wireless headphones. Half the size of Logitech’s previous wireless headphones, these cordless headphones are flexible and durable, yet deliver the complete freedom of experiencing digital music with no strings attached. We also offer the Logitech Noise Canceling headphones, which feature SilentSound™ noise canceling technology that can cancel up to 22 decibels of noise. They can be used with an iPod, PC or TV in the office, at home or on a plane. Streaming Media With our October 2006 acquisition of Slim Devices, Logitech added the Squeezebox and Transporter products to our streaming music systems lineup. These products let people enjoy high-quality digital music in multiple rooms of the home. Users can stream digital audio content from a PC or the Internet, and can leverage Internet audio services, such as Pandora and Rhapsody in the United States and similar services offered in other countries. The software for these products has been designed with contributions from a worldwide community of open-source developers. In fiscal year 2007, we unveiled the Logitech Wireless DJ™ Music System, which connects the PC to a home-entertainment center or speaker system and plays any PC audio format, including MP3, iTunes® (AAC), WMA, Internet radio, and podcasts, without requiring a wireless network. The long-range Wireless DJ remote, with its display and scroll wheel, can navigate a music collection from anywhere in the home. Gaming PC Game Controllers Logitech offers a full range of dedicated game controllers for PC gamers. The products address key game genres: joysticks for flight simulation; steering wheels for driving; gamepads for sports, action, and adventure games; mice and keyboards for strategy, RPG, and first-person gaming; and headsets for online gaming. Though the products are very different in nature due to their different target applications, they are united by Logitech’s attention to quality and excellence of design. They are focused on satisfying the needs of gamers and share some core Logitech technologies, such as cordless connection, force feedback, optical sensing, and interactive LCD. In fiscal year 2007, we extended the G-series family of products with the Logitech G25 Racing Wheel. The G-series line has been designed to deliver premium technical performance and key features that give gamers a 18 competitive edge. The Logitech G25 wheel offers advanced features which, until now, could be found only in specialized or custom-made racing simulators. Console Game Controllers and Accessories Since entering the console market in 2001, Logitech has consistently broadened our line with popular products in strategic segments. We offer products for console platforms such as PlayStation®2, PlayStation®3, PSP™ (PlayStation® Portable), Xbox® and Xbox 360™. We work with platform providers and game developers throughout the world to develop new applications and technologies for this market. With our expertise in vibration and force feedback, cordlessness, voice input, and video input, Logitech is enabling a broad range of new gaming experiences. To enable our hardware controllers and promote high-quality support within games, we also provide advanced software drivers and tools to game developers. In fiscal year 2007, we introduced a line of products for the newly launched PlayStation 3 computer entertainment system that includes the new Logitech Cordless Precision™ controller, the Logitech ChillStream™ controller, the Logitech Cordless MediaBoard™ keyboard, the Logitech HDMI cable and the Logitech USB Headset. CG Also in fiscal year 2007, we continued to build on our reputation for providing superior driving wheels with the Logitech DriveFX™ Wheel for Xbox 360. The DriveFX Wheel combines high-quality materials with advanced axial-feedback technology. Remote Controls Logitech has expanded our presence in the digital living room by offering advanced universal remote controls for home-entertainment systems. Our current line of Harmony advanced remote controls with patented Smart State Technology® provides simple, complete control of even the most elaborate entertainment system, including one-touch control of all entertainment activities. Our online database includes codes and characteristics needed to control more than 200,000 different home-entertainment device models from more than 5,000 different manufacturers. Logitech’s Harmony advanced remote controls offer interactive media capabilities, allowing users to select TV shows, movies or music titles from the interactive display. The latest addition to the line is the Harmony 1000 remote, which features a 3.5-inch QVGA color touch-screen and includes radio frequency (RF) wireless technology, providing the ability to control components and systems that are hidden behind closed cabinets. We also offer high-end solutions for custom installers and high-end audio-video dealers, which can control multi-room entertainment systems and some advanced lighting systems. Competitive Strengths We believe our key competitive strengths include: Product Definition, Technology and Industrial Design Excellence We understand the balance between features and complexity, functionality and style, price and performance. Logitech believes our ability to produce world-class, user-centric industrial designs, coupled with innovative technologies that deliver true benefit to the consumer, sets us apart from our competitors. We have repeatedly received awards for design and innovation. During fiscal year 2007, our product designs received the following honors: “red dot” awards, iF Industrie Forum Design awards, Good Design awards and CES Innovations Design and Engineering awards. Logitech’s advanced technology, evidenced by products such as the MX™ Revolution cordless laser mouse, the diNovo™ Edge keyboard, the Z-10 Interactive Speaker System, the G25 Racing Wheel, the QuickCam® Ultra Vision™ webcam, the Harmony® 1000 Advanced Universal Remote, the AudioStation™ high-performance iPod speaker system and others, garnered numerous top billings, including Editors’ Choice, Product of the Year, World Class Award, Top 100 Gadgets of the Year, and more, in a variety of publications 19 such as Popular Mechanics, PC World, PC Magazine, CNET, Computer Shopper, Macworld, Maximum PC, and in many other media outlets worldwide. Substantial Technical Expertise Logitech has accumulated significant expertise in the key engineering disciplines that underlie our products. For example, our engineers have continually enhanced motion-encoding technology for control devices over several distinct generations. Their expertise in mechanical design is showcased in the award-winning MX™ Revolution cordless laser mouse, which includes the MicroGear™Precison Scroll Wheel that sets a new benchmark for scrolling efficiency. Logitech engineers have developed several radio transmission technologies for cordless operations, developed new applications for webcams, enabled the integration of new controllers in console gaming, and developed innovative database and Web-based systems to configure our advanced remote controls. Many of the technologies involved in these developments have applications across multiple product offerings, allowing us to leverage our accumulated investment. We believe Logitech’s future lies not only in our strong internal technical resources, but also in partnering with other industry leaders with complementary technologies that promise to make the interface more productive, natural and enjoyable. Technological Innovation Logitech has long been at the forefront of technological innovation, with a list of more than 90 industry “firsts” to our name and a patent portfolio of more than 300 patents. We have continually embraced new connectivity technologies and standards. Logitech led in optical sensing technology with the opto-mechanical mouse in 1982. We were also among the first to market a digital still camera in 1991. We demonstrated the first working USB prototype at the Fall Comdex in 1995. In 2001, Logitech introduced the first cordless optical mouse. With the Cordless Presenter™, we introduced our first Bluetooth personal peripheral and in 2004, with the MXTM1000, the first laser mouse. Also in 2004, we extended the use of our proprietary 2.4 GHz technology to our mice products, further reducing power consumption and size, and enhancing the range of operation. In 2005, Logitech included the Z-wave radio technology in our high-end advanced remote controls, to enable simple home automation tasks based on this emerging connectivity standard. In fiscal year 2007, we introduced the MX Revolution cordless laser mouse, with the MicroGear Precision Scroll Wheel, which spins freely for up to seven seconds, spanning hundreds of pages with a single flick of the finger. We also introduced an innovative stand to make using a notebook PC more comfortable: the one-piece Alto, a notebook riser with an integrated, full-size keyboard that levels the notebook screen with the user’s eyes and frees their hands from the constraints of a cramped notebook keypad. Logitech continues to monitor the connectivity environment to optimize the user experience when interfacing with digital information. Retail Brand and Shelf Space We believe the Logitech brand name and industrial designs are recognized worldwide as symbols of product quality, innovation, ease of use and price-performance value. Logitech enjoys a strong and growing brand presence in more than 100 countries. During fiscal year 2007, we sold 83 million Logitech-branded products. We believe that in the consumer market, brand identity and brand awareness are important components of the purchase decision, and that as competition intensifies, the ability to secure shelf space will increasingly become a competitive advantage. Logitech’s brand has enabled us to build an extensive retail distribution network and to obtain critical shelf space. The strength of our brand is apparent in the OEM channel as well, where systems manufacturers and integrators, as well as game publishers, and other partners are choosing to bundle Logitech- branded products with their offerings. 20 Volume Manufacturing Capability Resulting from Strong OEM Relationships We believe our manufacturing capabilities are a significant competitive advantage. Over the past 11 years Logitech has built a significant manufacturing presence in Asia, where our ISO 9000-certified manufacturing facilities are currently producing more than 60 million units per year. As a result, we have been able to maintain strong quality process controls and have realized significant cost efficiencies. Our manufacturing expertise extends beyond production to include logistical support, just-in-time supply and process engineering. Logitech’s manufacturing capability has allowed us to continue our long-established relationships with large OEM customers. We currently sell to the majority of the world’s largest PC manufacturers, as well as to most of the next layer of systems manufacturers and system integrators. Because Logitech’s engineering and design staffs work collaboratively with OEM customers on the specifications for future products, we believe our OEM relationships provide valuable insight into the future of the computer marketplace and technology trends. Further, we plan to extend our OEM presence with both our traditional customer base and new classes of customers, including console platform manufacturers, game publishers and mobile-technology vendors. CG The combination of a strong retail brand and a high-volume manufacturing operation linked to our OEM relationships provides Logitech with a competitive advantage that we believe is unparalleled among our competitors. Global Presence Logitech is a global company capable of drawing upon the strengths of our global resources, global distribution system and geographical revenue mix. With manufacturing facilities in Asia, engineering teams in North America, Europe and Asia, major distribution centers in North America, Europe and Asia, as well as sales and marketing offices in major cities worldwide, we have worldwide access to leading technology, markets, personnel and ideas. Expertise in a Broad Array of PC Peripherals As we broaden our product portfolio beyond the PC platform, we have also continued to expand our portfolio of products for desktop and notebook PCs, offering a broader range of personal peripherals that people use every day as they work, communicate and play at their PC. Logitech personal peripherals bring together a broad variety of products that individuals – business people, home users, gamers and others – need to make their time on the Internet and time at the computer more productive, comfortable and enjoyable. As a result, Logitech is positioned to offer “one-stop shopping” for peripherals that have been designed to work seamlessly together. Industry Overview Increasingly affordable prices and wider availability of business, consumer, education, and communication applications have created a very large installed base of desktop and notebook personal computers. We believe that market penetration of PCs and other information access devices, already high in developed countries, is likely to increase worldwide. In addition, continuing growth in processing power and communications bandwidth, the increased accessibility of digital content, and the pervasive access and use of the Internet, create opportunities for new applications, new users and dramatically richer interactions between users and digital information. These developments create new demands by users who want to take full advantage of the increased processing power, new applications and new technologies in an intuitive, productive, comfortable and convenient manner. Today’s desktop and notebook PCs have evolved into affordable multimedia appliances or “digital hubs” capable of creating and manipulating vast amounts of graphics, sound and video. The interface devices sold with 21 most new PCs can be quite limited in the functionality they provide, especially when the need to offer new personal computers at low prices dictates basic, no-frills peripherals, such as a simple mouse and an alphanumeric keyboard. Logitech believes the expanded capabilities of PCs and the large installed base present a significant opportunity for companies that provide innovative personal peripheral products for the computer, since basic input devices alone do not fully enable many of the newest applications. Therefore, on one hand, PC manufacturers continue to require large volumes of simple personal peripherals. On the other hand, the after-market (that is, the market for peripheral upgrades and add-ons sold separately from the basic PC) grows as consumers demand more function-rich personal peripheral tools, and as the PC plays an increasing role in the new digital lifestyle. In addition, we believe that trends established in the consumer technology market, such as brand identity, affordability, ease of installation and use as well as visual appeal, have become important aspects of a purchase decision when buying a desktop or notebook PC and personal peripherals. We also believe that similar industry dynamics and personal peripheral device opportunities exist for non-PC platforms, such as video game consoles, mobile phones, digital music players and home-entertainment systems. As these additional platforms deliver new functionality, increased processing power and growing communications capabilities, we expect demand to increase for add-on, complementary devices connected to these platforms. The product expertise Logitech has developed around the PC platform extends to these other platforms as well and provides further opportunity for growth and leverage. Business Strategy Logitech’s objective is to strengthen our leadership in the growing market for personal peripherals, linking people to the digital world wherever and whenever they need to access digital information to communicate, learn and play. We serve the installed base of desktop and notebook PCs by offering innovative personal peripherals to address needs for comfort and productivity as well as entertainment and communication. While PCs are being used more and more as a digital hub, other platforms such as game consoles, mobile phones, digital music players and home-entertainment systems are also becoming a rich resource for people to access information, communicate, listen to music and enjoy an expanding offering of interactive games. To achieve our objective, the key elements of Logitech’s strategy consist of the following: Technological Innovation To capitalize on market opportunities for personal peripherals, we recognize that continued investment in product research and development is critical to facilitating innovation of new and improved products and technologies. Beyond updating our existing line of personal peripherals, we will continue to lead the development of new technologies and to create product innovations, such as those introduced in fiscal year 2007, which include the MXTM Revolution cordless laser mouse’s MicroGearTM Precision Scroll Wheel, the Z-10 Interactive Speaker System’s innovative interactive display, the diNovo EdgeTM keyboard’s sleek, rechargeable design, and the Harmony® 1000 remote’s color touch screen. Logitech is committed to meeting customer needs for personal peripheral devices and believes that innovation, value and product quality are important elements to gaining market acceptance and strengthening our market leadership. Manufacturing To effectively respond to rapidly changing demand and to leverage economies of scale, Logitech will continue our hybrid model of in-house manufacturing and third-party contract manufacturers to supply our products. Through our high-volume ISO 9000-certified manufacturing operations located in Suzhou, China, we believe we have been able to maintain strong quality process controls and have realized significant cost efficiencies. The expansion of our Suzhou operations, which was completed in the summer of 2005, provides for 22 increased production capacity and greater flexibility in managing product demand. Further, by outsourcing the manufacturing of certain products, we seek to reduce volatility in production volumes as well as time to market. Information Technology Logitech has made investments to upgrade our business applications and information technology systems. Our investments in information technology are focused on positioning Logitech for future growth by improving our operational and financial processes to realize cost structure improvements and to effectively manage the increased complexity of our business through standardization and integration of our IT environments. Geographic Expansion We believe that the market penetration for Logitech products is particularly low in developing markets such as Latin America, Eastern Europe, India and China. We are committing resources to capitalize on the growth opportunities in these regions, including securing new channel partners, strengthening relationships with existing partners, expanding our sales force and investing in product and marketing initiatives. CG Product Strategy To capitalize on the many opportunities in the growing digital marketplace, Logitech’s product strategy focuses on personal peripherals in three digital environments: • • • The Office Environment – Desktop and Notebook Computers The Digital Home Environment – Digital Music Systems, Home-Entertainment Systems, Game Consoles The Mobile Environment – Notebook Computers, Digital Music Players, Mobile Phones The Office Environment Logitech has successfully broadened our desktop presence by introducing new, more innovative, high- performance PC navigation devices that have gained market acceptance. In addition, we have expanded beyond our traditional role as a provider of pointing devices for the desktop or notebook PC into a leading brand for video imaging products, keyboards, PC audio products and control devices for emerging 3D applications and platforms such as Google Earth and Adobe Creative Suite. We believe there is an opportunity to continue to innovate and differentiate across a broad set of essential personal peripherals that people touch and use every day. The Digital Home Environment We see the dramatic increase of digital content available for the home as a significant source of new opportunities for Logitech. We believe that the new digital home, with a broad and evolving selection of digital entertainment and information content available from multiple sources, and the innovation in affordably priced digital-technology equipment, will over time allow us to play a significant role in the consumer experience. Our product portfolio includes a line of advanced remote controls for home entertainment and a variety of speaker and headphone products, as well as the Squeezebox™ and the SqueezeNetwork, which allow people to enjoy digital music in any room of the house. These are parts of our strategy to pursue new opportunities in the digital home environment, positioning Logitech at the convergence of consumer electronics and personal computing in the digital living room. Also for the digital home, Logitech offers a broad spectrum of products for gaming consoles and PCs. With our expertise in force and vibration feedback, cordless connectivity, voice input and video input, Logitech is 23 enabling a broad range of gaming experiences for console platforms. With many of our products, we can efficiently leverage our investment for the desktop PC into other platforms such gaming consoles. The Mobile Environment As digital information and communication are evolving into the mobile environment, the opportunity exists for Logitech to support an even broader set of platforms. We believe that the growing number of mobile phones, notebook computers and mobile entertainment and communication platforms, such as portable digital music players and gaming devices, will bring additional demand for complementary personal peripherals. Wherever and whenever people want to access, create or consume digital information, the need exists for devices that allow users to conveniently access the digital world in an intuitive and personal way. Logitech plans to support this need in mobile environments, as we do in the office and home. Technology Logitech products are sophisticated systems that combine multiple engineering disciplines – lightweight radio frequency transmission, optical, mechanical, electrical, acoustical and software – in user-centric industrial designs. These systems share common design elements, including: sensors to detect and encode motion, images, sound or other analog data into electrical signals; custom ASICs; microcontrollers to convert and process signals received from the sensor; a communications subsystem to exchange signals with an attached computer or other intelligent host; and a suite of driver, utility and user interface software modules and Web sites. We believe the software modules and Web support complete a seamless user-centric solution for information input, access and control. Logitech’s products incorporate the following principal technologies: RF Technologies and Cordless Product Design Logitech is a leader in the development of low-power radio frequency (RF) technologies for use over short distances. We are focusing our current cordless development efforts primarily in three RF technology areas: Fast RF cordless technology, proprietary and non-proprietary 2.4 GHz-based cordless technologies, and Bluetooth® wireless technology, a communications standard with a broad range of applications. Fast RF cordless technology is designed to provide excellent performance for everyday computing applications with a very long battery life and mass market price points. 2.4 GHz technology, designed by Logitech especially for game controllers, satisfies gamers who value high-speed performance. Logitech’s cordless gaming devices on PC, PS®2, PS®3, and Xbox® platforms have generated frequent industry and media accolades. Logitech’s proprietary 2.4 GHz technology is also the technology of choice for mice products that need to achieve small size and high range of operation. We believe Bluetooth® wireless technology is an enabler of a much wider acceptance of cordless products in the marketplace. For our wireless music products, we use Bluetooth wireless technology with the Advanced Audio Distribution Profile (A2DP), an emerging standard for high-quality wireless stereo sound. Motion Sensing Logitech’s sensors transform analog motion and images into electronic signals. Logitech, with the patented Marble® technology, was the first company to introduce optical sensing in pointing devices. Optical motion sensors are developed in partnership with technology suppliers, allowing us to improve the optical sensing quality, lower the cost, and increase the reliability of our optical mouse products. Similarly, Logitech’s Web cameras use optical sensors to detect colors, shapes and other image attributes, and to convert these attributes into electronic signals. 3Dconnexion’s line of 3D input devices are the industry’s leading 6 degrees of freedom (“6DOF”) devices with the ability to move 3D objects forward/backward, up/down, left/right and rotate around all 3 axes simultaneously. The patented technology built into each 3D mouse consists of 6 LEDs and 6 Position Sensing in all axes Detectors (“PSDs”) placed in a precise 3D geometric configuration to detect movement simultaneously. Connected to the computer via the USB, the 6DOF sensor sends multiple threads of navigation 24 data to 3D applications. A software development kit is available for integration into 3D applications to capture this navigation data and process 3D movements within the application. Signal Processing Algorithms Logitech engineers employ sophisticated signal processing algorithms across many product lines to compute spatial displacements, enhance color image quality and compress or format data for transmission. For example, in our Internet Web cameras, signal-processing algorithms are used for color extraction, image enhancement and data compression. Power Management Logitech’s products use advanced power management, including techniques to reduce power consumption when needed. Cables connected to separate power supplies are inconvenient in the case of products such as corded pointing devices, and impossible in the case of cordless devices. Consequently, we believe low power consumption is an essential product attribute for the consumer marketplace. CG Force Feedback Force feedback adds a real physical sensation to computer and console systems, enabling users to feel surfaces, bumps, vibrations, textures, inertia, springs, and many other physical phenomena. This licensed technology is primarily used in joysticks and steering wheels where game players can experience the actual physical sensation of being at the controls of a fighter jet or at the wheel of a racing car. Software We are focusing our software development efforts on enabling efficient PC navigation, simplifying the control of content and devices in the digital home, expanding gaming functionality, and providing real-time video communication products and services such as video calling and video instant messaging. Also, Logitech has developed software development kits, or SDKs, to enable support for a variety of peripherals on gaming consoles. These include SDKs for force feedback joysticks and wheels, mice, keyboards, cameras and headsets. The SDKs are used in many of the top-selling console and PC games and make it easy for users to leverage the latest features of Logitech’s gaming peripherals. Logitech’s line of Harmony advanced universal remote controls is powered by Web-based software that minimizes the amount of technical knowledge required for users to program and use their remote controls. With the acquisition of Slim Devices, we acquired SlimServer, the open source software that powers the Squeezebox and Transporter, as well as any streaming MP3 player on the user’s network. SlimServer runs on Windows, Mac, Linux, BSD and Solaris. This software was created with the contributions of a worldwide community of developers. The efforts of the Slim Devices open source community results in rapid development and a rich set of features, evolving in response to user feedback. SlimServer also powers SqueezeNetwork, an always-on hosted service that provides access to a large number of Internet radio stations, podcasts, and music services. Database Our acquisition, in 2004, of Intrigue Technologies, Inc. brought a large and growing database of information about consumer technology devices. Information contained in the Harmony database includes rich sets of characteristics for a large number of consumer devices, ranging from older devices to the latest offerings. This information helps give users full control of their devices, even if they are not aware of the intricacies of their home-entertainment devices. 25 Audio The Company’s audio development resources cover a wide range of audio technologies. In speaker systems, Logitech uses advanced computer-aided design and simulation tools for amplifier and printed circuit board design. Sophisticated laser and PC-based technologies support speaker transducer design. For headsets, in-house engineering and testing technology ensure high-resolution voice recognition microphones. Computer-aided design and in-house rapid prototyping technology speed the overall process and help ensure that products meet design and performance goals. Research and Development We believe that continued investment in product research and development is critical to Logitech’s success. We believe that our international structure provides advantages and synergies to our overall product development efforts. Our product research and development activities are conducted mainly at the following engineering centers. Switzerland. Logitech’s Swiss engineering center in Romanel-sur-Morges provides us with advanced sensing and cordless technologies. In addition, the center is a convenient point for gaining access to leading European technologies. We have been successful in recruiting and retaining top engineering graduates from leading Swiss universities because we are one of the few personal computer technology companies with research and development activities in Switzerland. in collaboration with Ecole Polytechnique Fédérale de Lausanne (“EPFL”), created the Logitech EPFL incubator, which will offer a select number of students and researchers financial, educational and functional support to develop their ideas into the technologies and personal peripherals of the future. In February 2007, Logitech, Taiwan. Through our engineering center in Hsinchu, Taiwan, we have established access to key Asian markets, engineering resources and high-tech manufacturing. Taiwan is a world leader in manufacturing and engineering, particularly in the design and manufacture of semiconductors, notebook computers, scanners, monitors and related products. Moreover, the common language of Taiwan and China facilitates the transfer of products from Logitech’s engineering launch site in Taiwan to our high-volume manufacturing site in China. U.S.A. Our Fremont and Mountain View, California locations allow Logitech access to Silicon Valley’s talent pool, particularly important in the development of Internet applications, software and video technologies, and wireless networking. In addition, locations in the midst of the world’s leading technology market enable us to compile market intelligence to define and position products and develop key strategic alliances. Logitech’s Vancouver, Washington engineering center designs and develops our audio products. The facility specializes in acoustic research and development, including model and simulation work. Areas of development include cordless audio applications, demanding applications for audio input such as voice recognition, and audio output for PC speakers. Canada. Logitech’s Mississauga, Canada engineering center designs and develops our Web-connected advanced remote control products. In addition, our Canadian engineering center develops and maintains Logitech’s on-line Smart State database of infrared codes and device characteristics used in programming the Web-connected advanced remotes. Germany. Our 3Dconnexion subsidiary, whose research and development facility is located in Seefeld, Germany, provides Logitech with ongoing research in 3D controller devices. The location of the facility provides access to Germany’s leading automotive manufacturers, who are important 3Dconnexion customers and to the Institute of Robotics and Mechatronics (DLR), a leading research center in robotics from which we have licensed some of our 3D technology. Our research and development expenses for fiscal years 2007, 2006 and 2005 amounted to $108.3 million, to continue to devote significant resources to research and $88.0 million and $73.9 million. We expect development to sustain our competitive position. 26 Marketing, Sales and Distribution Principal Markets Logitech operates as one business segment, which is the design, development, production, marketing and support of personal interface devices. Net sales to unaffiliated customers by geographic region were as follows (in thousands): Year ended March 31, 2007 2006 2005 Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,027,852 729,207 309,510 $ 887,736 617,942 291,037 $ 733,667 503,356 245,603 Total net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,066,569 $1,796,715 $1,482,626 CG Marketing Logitech builds awareness of our products and recognition of our brand through targeted advertising, public relations efforts, distinct packaging of our retail products, in-store promotions and merchandising, a Worldwide Web site and other efforts. We also acquire knowledge of our users through customer feedback and market research, including focus groups, product registrations, user questionnaires, primary and multi-client surveys and other techniques. In addition, manufacturers of PCs and other products also receive customer feedback and perform user market research, which sometimes result in specific requests to Logitech for specific products, features or enhancements. Sales and Distribution Channels Logitech sells through many distribution channels, including distributors, OEMs and regional and national retail chains, including online retailers. We support these retail channels with third-party distribution centers located in North America, Europe and Asia Pacific. These centers perform final configuration of products and product localization with local language manuals, packaging, software CDs and power plugs. In addition, Logitech’s distribution mix includes e-commerce in the U.S. as well as e-commerce capabilities in several European countries. In retail channels, Logitech’s direct sales force sells to distributors and large retailers. Our distributor customers typically resell products to retailers, value-added resellers, and systems integrators with whom Logitech does not have a direct relationship. These distributors in the U.S. include D&H Distributing, Ingram Micro Inc. and Tech Data Corporation, and in Europe include Tech Data Corporation, Ingram Micro, Actebis and many national distributors such as Banque Magnetique in France, GEM in the United Kingdom and Also-ABC in Switzerland. Logitech’s products can be found in major retail chains, where they typically enjoy access to significant shelf space. These chains in the U.S. include Best Buy, Circuit City, Office Depot, Staples, Target and Wal-Mart, and in Europe include MediaMarkt/Saturn, Carrefour, KESA Group, FNAC, Dixons Stores Group PLC and most key national consumer electronics chains. Logitech products also can be found at the top online e-tailers, which include Amazon.com, Buy.com, CDW, Insight, and others. Logitech’s OEM products are sold to large OEM customers through a direct sales force, and we support smaller OEM customers through distributors. We count the majority of the world’s largest PC manufacturers among our customers. Through our operating subsidiaries, we maintain sales offices or sales representatives in 37 countries. 27 Customer Service and Technical Support Logitech maintains customer service and technical support operations in the United States, Canada, Europe, Asia and Australia. Customer service and technical personnel provide support services to retail purchasers of products through telephone, email, facsimile and the Logitech Web site. This site is designed to expedite overall response time while minimizing the resources required for effective customer support. In general, OEMs provide customer service and technical support for their products, including components purchased from suppliers such as Logitech. Logitech provides warranties on our branded products which range from one to five years. Manufacturing Logitech’s manufacturing operations consist principally of final assembly and testing. Our high-volume manufacturing is located in Suzhou, China. We expanded our Suzhou operations in 2005 with the construction of a new factory to provide for additional production capacity to meet future demand. This facility has 30% greater capacity than our first factory with the potential to double beyond that. The Suzhou facilities are designed to allow production growth as well as flexibility in responding to changing demands for Logitech’s products. We continue to focus on ensuring the efficiency of the Suzhou facilities, through the implementation of quality management and employee involvement programs. New product launches, process engineering, commodities management, logistics, quality assurance, operations management and management of Logitech’s contract manufacturers occur in Hsinchu, Taiwan, Suzhou, China and Hong Kong, China. 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 devices and audio products, are manufactured by third-party suppliers to Logitech’s specifications. Retail product localization with local language manuals, packaging, software CDs and power plugs is performed at distribution centers in North America, Europe and Asia Pacific. Competition Our industry is intensely competitive. It is characterized by short product life cycles, continual performance enhancements, and rapid adoption of technological and product advancements by competitors in our retail market and a trend of declining average selling prices in the OEM market. We continue to experience aggressive price competition and other promotional activities from our primary competitors and from less-established brands, and we may choose to adjust prices or increase other promotional activities to improve our competitive position. We may also encounter more competition if any of our competitors decide to enter other markets in which we currently operate. In addition, we have been expanding the categories of products we sell, and entering new markets, such as the market for programmable remote controls and streaming media devices. As we do so, we are confronting new competitors, many of which 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 both our retail and OEM business, including in the terms and conditions that our competitors offer customers, which may be more favorable than our terms and conditions and require us to take actions to increase our customer incentive programs, which could impact our revenues and operating margins. Corded and Cordless. Microsoft is our main competitor in retail cordless (mice and desktops) and corded (mice and keyboards) categories. Microsoft’s offerings include a complete line of mice, keyboards and desktops. 28 Microsoft has significantly greater financial, technical, sales, marketing and other resources, as well as greater name recognition and a larger customer base. We are also experiencing competition and pricing pressure for corded and cordless mice and desktops from less-established brands, in the lower-price segments, which could potentially impact our market share. The emerging notebook peripheral segment is also an area where we face aggressive pricing and promotions, as well as new competitors that have broader notebook product offerings than we do. Video. Our competitors for PC Web cameras include Creative Labs, Philips and Microsoft, whose entry into the product category made the competitive environment more intense. We are encountering aggressive pricing practices, promotions and channel marketing on a worldwide basis, which may impact our revenues and margins. Microsoft is a leading producer of operating systems and applications with which our mice, keyboards and webcams are designed to operate. As a result, Microsoft may be able to improve the functionality of its own peripherals to correspond with ongoing enhancements to its operating systems and software applications before we are able to make such improvements. This ability could provide Microsoft with significant lead-time advantages. In addition, Microsoft may be able to offer pricing advantages on bundled hardware and software products that we may not be able to offer. CG Audio. Competitors in audio devices vary by product In the PC, mobile entertainment and communication platform speaker business, competitors include Plantronics and its Altec Lansing subsidiary, Creative Labs, and Bose Corporation. In the PC and console headset, telephony and microphone business, our main competitors include Plantronics and its Altec Lansing subsidiary. With the acquisition of Slim Devices in October 2006, we expanded our audio product portfolio to include network-based audio systems for digital music. This is an emerging market, with several small competitors, as well as larger established consumer electronics companies, like Sony and Philips. line. Advanced Remote Controls. Our revenues and market share for personal peripheral devices for home entertainment systems have expanded substantially in the last year. With many companies offering universal remote controls, our success will likely attract more competition. Our competitors include, among others, Philips, Universal Remote, Universal Electronics, RCA and Sony. Gaming. Competitors for our interactive entertainment products include Intec, Mad Catz, Pelican Accessories and Saitek Industries. Our controllers for PlayStation® also compete against controllers offered by Sony. 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 expertise and 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. Claims are referred to 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 3D 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.” 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 U.S. and in foreign countries and 29 jurisdictions. Logitech enforces its trademark and trade name rights in the U.S. and abroad. 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 and technical measures. Governmental Regulation The European Union (“EU”) has adopted the Directive on the Restriction of Use of Certain Hazardous Substances in Electrical and Electronics Equipment (“RoHS”). This directive restricts the placement into the EU market of electrical and electronic equipment containing certain hazardous materials including lead, mercury, cadmium, chromium, and halogenated flame-retardants. RoHS became effective in July 2006 with a limited number of exceptions. Most Logitech products are covered by the directive and have been modified, if necessary, to be RoHS compliant. Logitech has an active program to ensure compliance with the RoHS directive and continues to source and introduce the use of RoHS compliant components and manufacturing methods in order to comply with the requirements of the directive. Further, all Logitech products are subject to the EU’s Waste Electrical and Electronic Equipment Directive (“WEEE”). This directive requires producers of electrical goods to be financially responsible for specified collection, recycling, treatment and disposal of covered products. Producer obligations also include specified collection, recycling, treatment and disposal of equipment that had been placed in the EU marketplace prior to August 2005, and has reached its end of life. To date, specific legal requirements have not been finalized by all member states, with certain member states delaying implementation until 2007 or beyond. In those countries where legislation is not in effect, we have concluded that the costs of managing and recycling historical and future waste equipment are not reasonably estimable, and no liability has been recognized. In those countries which have enacted legislation, we have provided for the costs of managing and recycling historical and future waste equipment. These costs, which are not material, are based on Logitech’s estimated market share of the total cost, which depends on a number of factors, including administration and treatment costs as well as the commercial cost of recycling. On March 1, 2007, China’s Management Methods on the Control of Pollution Caused by Electronic Information Products (“China RoHS”) entered into effect. This is substantially similar to the EU RoHS directive and as such, Logitech products are already compliant. It is expected although not yet officially confirmed that exclusions listed in EU RoHS will be carried into China RoHS legislation. China RoHS requires additional labelling of product that will be shipped in China and Logitech has already taken steps to help ensure we comply with these requirements. In the U.S., Appliance Efficiency Regulations were adopted by the California Energy Commission. The regulations set out standards for the energy consumption performance of products within the scope of the regulations, which includes some of Logitech’s products. The standards apply to appliances sold or offered for sale in California, and Logitech has redesigned or changed some products to comply with these regulations. Similar environmental legislation may be enacted in other geographies, the cumulative impact of which could be significant. If such legislation is enacted in other countries, Logitech intends to develop compliance programs as necessary. However, until that time, we are not able to estimate any possible impact. The effects on Logitech’s business of complying with other government regulations are limited to the cost of allocation of the appropriate resources for agency fees and testing as well as the time 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 seek to modify our products or processes to address those changes. 30 Seasonality Our retail product sales are seasonal. Sales are typically highest during the third fiscal quarter (October to December), due primarily to the increased demand for our products during the year-end holiday buying season, and to a lesser extent in the fourth fiscal quarter (January to March). Our sales in the first and second quarters can vary significantly as a result of new product introductions and other factors. Accordingly, year-over-year comparisons are more indicative of variability in our results of operations than quarter-over-quarter comparisons. Materials We purchase some of our products and the key components used in our products from a limited number of sources. Refer to the discussion in Item 3D Risk Factors – “We purchase key components and products from a limited number of sources, and our business and operating results could be harmed if supply were delayed or constrained or if there were shortages of required components.” C. Organizational Structure The following lists the Company’s significant subsidiaries: CG Name Country of Incorporation Ownership Interest Logitech Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Logitech Asia Pacific Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . Logitech Technology (Suzhou) Co. Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Logitech Europe S.A. U.S. Hong Kong China Switzerland 100% 100% 100% 100% D. Property, plant and equipment Logitech’s Europe headquarters are in Romanel-sur-Morges, Switzerland, in a Company-owned facility comprising 33,300 square feet, occupied by research and development, product marketing, technical support, administration and certain Logitech group activities including finance. We lease two additional facilities of 8,700 and 8,400 square feet in Morges, Switzerland. These leases expire in June 2007 and July 2007. Sales and marketing, including sales management, are located in these facilities. We have signed a lease on a new facility in Morges, comprising approximately 51,000 square feet, which we began occupying in April 2007. This facility is occupied by sales and marketing management, technical support, administration and certain Logitech group activities, including finance, legal and human resources. The lease began in January 2007 and will continue for 10 years, with the option for Logitech to terminate the lease after 5 years. In North America, our headquarters in Fremont, California consist of four leased buildings comprising approximately 172,000 square feet. These facilities are occupied by Logitech’s Americas headquarters, including research and development, product marketing, sales management, technical support and administration. The Fremont lease expires in March 2013. The audio business unit is located in 36,000 square feet of leased office space in Vancouver, Washington. This lease expires in April 2009. We also lease approximately 18,000 square feet in Mountain View, California, occupied by our streaming media group, on a lease which expires in May 2011. In addition, we sublease approximately 20,000 square feet in Mississauga, Canada for our remote controls group, on a lease which expires in September 2009. Our 3Dconnexion subsidiary has subleased a 5,500 square foot office in San Jose, California through December 2007. In Seefeld, Germany, 3Dconnexion has leased 15,000 square feet through the year 2010 for its European headquarters, research and development, and manufacturing. Worldwide operations and engineering occupy a Logitech-owned 112,000 square foot facility in Hsinchu, Taiwan, which includes mechanical engineering, new product launches, process engineering, commodities management, logistics, quality assurance, and administration. Personnel in Hsinchu manage distribution of 31 product throughout Asia through the use of externally administered warehouses in Taiwan, China and Singapore. Logitech’s high-volume manufacturing is located in Suzhou, China, in two Company-owned buildings totaling 600,000 and 253,700 square feet. We also leased a 91,500 square foot building for molding operations, on a lease which terminates in April 2007. We are negotiating a lease on a new facility of approximately 53,750 square feet for the molding operations. We have also signed a lease on a new facility in Suzhou, comprising approximately 143,000 square feet, which is expected to be available for occupation in June 2007. The lease expires in May 2012 and the facility will be used for production and manufacturing. In addition to the distribution centers in Asia, Logitech has major distribution centers in Southaven, Mississippi and in the Netherlands. The 550,000-square foot facility in Southaven is contracted with a third-party logistics company that leases and manages the distribution center for Logitech. The arrangement with the management company is through December 2007 with an option to renew annually. We have two distribution centers in the Netherlands; the main European distribution location in Venray, Netherlands and a smaller facility in Venlo, Netherlands. Both facilities are contracted with warehouse management companies that lease and manage the distribution centers for Logitech. The Venray warehouse is approximately 183,400 square feet and the arrangement with the management company was originally through December 2006 and has been extended to December 2009. The Venlo facility is approximately 80,000 square feet, and the arrangement with the management company is through December 2007. Additionally, we have a 45,500-square foot distribution center in Zalaegerzeg, Hungary, which is also contracted with a warehouse management company. Logitech also contracts with various distribution services throughout the world for additional warehouses in which we store inventory. We also have leased sales offices in more than 55 locations in 37 countries, with various expiration dates from 2007 to 2015. We believe that Logitech’s manufacturing and distribution facilities are adequate for our ongoing needs and we continue to evaluate the need for additional facilities to meet anticipated future requirements. ITEM 4A. UNRESOLVED STAFF COMMENTS Not applicable. ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS The following Operating and Financial Review and Prospects contains forward-looking statements that involve risks and uncertainties. The Company’s actual results could differ materially from those anticipated in these statements as a result of certain factors, including those set forth above in Item 3D “Risk Factors,” and below in Item 11 “Quantitative and Qualitative Disclosure about Market Risk.” Overview Logitech is a world leader in personal peripherals for personal computers and other digital platforms, developing and marketing innovative products in PC navigation, Internet communications, digital music, home- entertainment control, interactive gaming and wireless devices. Our products include mice, keyboards, trackballs, 3D control devices, webcams, multimedia speakers, wireless and Internet music solutions for the home, headsets, headphones, gaming controllers, gaming accessories and advanced remote controls for home entertainment systems. We sell our products to a network of distributors and resellers (“retail”) and to original equipment manufacturers (“OEMs”). Our worldwide retail network includes wholesale distributors, consumer electronics retailers, mass merchandisers, specialty electronics stores, computer and telecommunications stores, value-added resellers and online merchants. 32 We have historically targeted peripherals for the PC platform, a market that is dynamically changing as a result of consumer trends toward notebooks and other mobile devices. We remain focused on strengthening our leadership in the PC peripherals market through the introduction of products that support the continued growth of the notebook market segment. We have also expanded into peripherals for other platforms, including video game consoles, mobile phones, home entertainment systems and mobile entertainment and digital music systems. Logitech’s markets are extremely competitive and are characterized by short product life cycles, rapidly changing technology, evolving customer demands, and aggressive promotional and pricing practices. In order to remain competitive, we believe continued investment in product research and development is critical to driving innovation with new and improved products and technologies. We are committed to meeting customer needs for personal peripheral devices and believe innovation and product quality are important to gaining market acceptance and strengthening market leadership. Over the last several years, Logitech has created a foundation for long-term growth, by expanding and improving our supply chain operations, investing in product development and marketing, delivering innovative new products and pursuing new market opportunities. We have significantly broadened our product offerings and the markets in which we sell. Our expansion has been primarily organic, but we have also grown as a result of a limited number of acquisitions that expanded our business into new product categories. CG In fiscal year 2007, revenues increased 15% to $2.1 billion and net income increased 27% to $229.8 million, reflecting our 2007 focus on capturing growth opportunities and improving profitability. We achieved continued growth in all major product categories, an indication of the strength of our product portfolio. Cordless mice and desktops, audio and Harmony remote control retail sales were key growth categories contributing to the Company’s fiscal 2007 financial performance. We also achieved strong gross margin improvements through our emphasis on driving product innovation and controlling and reducing our product cost structure. We also invested in business applications and information technology to improve our operational and financial processes. Our strategy for fiscal year 2008 remains to position Logitech as a premium supplier in our product categories, offering affordable luxury to the consumer while continuing to compete aggressively in all market segments, from the entry level through the high-end. To implement this strategy, our focus will include continued growth through innovative new products and enhanced scalability of operations. We plan to expand our successful line of peripherals for the notebook platform, particularly with new cordless mice and products similar to the Logitech Alto notebook stand. We have a number of innovative keyboards and desktops planned for desktop PC users. We will also introduce major navigation innovation in the pointing device category. In the digital music arena, we plan to introduce new PC and iPod® speakers for all major price points, and leverage the opportunities provided by our Slim Devices acquisition in the wireless streaming of digital content. Innovative new gaming products and the continued expansion of the Harmony remote control product line are also in our plans for fiscal year 2008. To support our planned growth, we intend to scale our processes to handle the increased complexity of our product line and improve the product life cycle management process. We also intend to manage our operating expenses in line with our gross profit growth for the year. Critical Accounting Estimates The preparation of financial statements and related disclosures in conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and in compliance with relevant Swiss law requires the Company to make judgments, estimates and assumptions that affect reported amounts of assets, liabilities, net sales and expenses, and the disclosure of contingent assets and liabilities. 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 Logitech’s financial condition and operating results. 33 We base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances. Although these estimates are based on management’s best knowledge of current events and actions that may impact the Company in the future, actual results could differ from those estimates. 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. Customer Programs We record accruals for product returns, cooperative marketing arrangements, customer incentive programs and price protection. The estimated cost of these programs is accrued in the period the Company sells the product or commits to the program as a reduction of revenue or as an operating expense, if we receive an identifiable benefit from the customer and can reasonably estimate the fair value of that benefit. Significant management judgments and estimates must be used to determine the cost of these programs in any accounting period. The Company grants limited rights to return product. Return rights vary by customer, and range from just the right to return defective product to the right to return a limited percentage of the previous quarter’s purchases, if the customer places an offsetting order for the amount they returned. Estimates of expected future product returns are recognized at the time of sale based on analyses of historical return trends by customer and by product, inventories owned by and located at distributors and retailers, current customer demand, current operating conditions, and other relevant customer and product information, such as stage of product life-cycle. Return trends are influenced by the timing of the sale, the type of customer, operational policies and procedures, product sell-through, product quality issues, sales levels, market acceptance of products, competitive pressures, new product introductions, product life cycle status, and other factors. Return rates can fluctuate over time, but are sufficiently predictable to allow us to estimate expected future product returns. The Company’s cooperative marketing arrangements include contractual customer marketing and sales incentive programs. We enter into customer marketing programs with most of our distribution and retail customers allowing customers to receive a credit equal to a set percentage of their purchases of the Company’s products for various marketing programs. The objective of these programs is to encourage advertising and promotional events to increase sales of our products. Accruals for the estimated costs of these marketing programs are recorded based on the contractual percentage of product purchased in the period we recognize revenue. The Company also offers rebates and discounts for certain types of sell-through programs. Accruals for these sales incentive programs are recorded at the time of sale based on negotiated terms, historical experience and inventory levels in the channel. Customer incentive programs include volume and consumer rebates. We offer volume rebates to our distribution and retail customers related to purchase volumes or sales of specific products by distributors to specified retailers. Reserves for volume rebates are recognized as a reduction of the sale price at the time of sale. Estimates of required reserves are determined based on negotiated terms, consideration of historical experience, anticipated volume of future purchases, and inventory levels in the channel. Consumer rebates are offered from time to time at the Company’s discretion directly to end-users. Estimated costs of consumer rebates and similar incentives are recorded at the time the incentive is offered, based on the specific terms and conditions. Certain incentive programs, including consumer rebates, require management to estimate the number of customers who will actually redeem the incentive based on historical experience and the specific terms and conditions of particular programs. We have contractual agreements with certain of our customers that contain terms allowing price protection credits to be issued in the event of a subsequent price reduction (contractual price protection). Our decision to 34 CG make price reductions is influenced by channel inventory levels, product life cycle stage, market acceptance of products, the competitive environment, new product introductions and other factors. Credits are issued for units that customers have on hand or in transit at the date of the price reduction. Reserves for the estimated amounts to be reimbursed to qualifying customers are established quarterly based on planned price reductions, analyses of qualified inventories on hand with distributors and retailers and historical trends by customer and by product. We regularly evaluate the adequacy of our accruals for product returns, cooperative marketing arrangements, customer incentive programs and price protection. Future market conditions and product transitions may require the Company 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 reductions to revenue or increased operating expenses. If, at any future time, the Company becomes unable to reasonably estimate these costs, recognition of revenue might be deferred until products are sold to end-users, which would adversely impact revenue in the period of transition. Allowance for Doubtful Accounts We sell our products through a worldwide network of distributors, retailers and OEM customers. Logitech generally does not require any collateral from its customers. However, we seek to control our credit risk through ongoing credit evaluations of our customers’ financial condition. We regularly evaluate the collectibility of our accounts receivable and maintain allowances for doubtful accounts. The allowances are based on management’s assessment of the collectibility of specific customer accounts, including their credit worthiness and financial condition, as well as the Company’s historical experience with bad debts and customer deductions, receivables aging, current economic trends and geographic or country-specific risks and the financial condition of its distribution channel. As of March 31, 2007, one customer represented 16% of total accounts receivable. The customers comprising the ten highest outstanding trade receivable balances accounted for approximately 52% of total accounts receivable as of March 31, 2007. A deterioration of a significant customer’s financial condition could cause actual write-offs to be materially different from the estimated allowance. If any of these customers’ receivable balances should be deemed uncollectible or if actual write-offs are higher than historical experience, we would have to make adjustments to our allowance for doubtful accounts, which could result in an increase in the Company’s operating expenses. Inventory Valuation The Company must order components for its 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. We record inventories at the lower of cost or market value and record write-downs of inventories which are obsolete or in excess of anticipated demand or market value. A review of inventory is performed each fiscal quarter that considers factors including the marketability and product life cycle stage, product development plans, component cost trends, demand forecasts and current sales levels. We identify inventory exposures by comparing inventory on hand, in the channel and on order to historical and forecasted sales over six month periods. Inventory on hand which is not expected to be sold or utilized based on review of forecasted sales and utilization is considered excess, and we recognize the write-off in cost of sales at the time of such determination. At the time of loss recognition, a new, lower-cost basis for that inventory is established and subsequent changes in facts and circumstances would not result in an increase in the cost basis. If there were 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 which could adversely affect gross margins in the period when the write-downs are recorded. 35 Share-Based Compensation Expense We adopted the fair value recognition provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payments” (“SFAS 123R”), effective April 1, 2006, using the modified prospective transition method. Therefore, results for periods prior to April 1, 2006 have not been restated to include share- based compensation expense calculated in accordance with SFAS 123R. Share-based compensation expense for fiscal year 2007 also includes compensation expense, reduced for estimated forfeitures, for awards granted after April 1, 2006 based on the grant-date fair value estimated using the Black-Scholes-Merton option-pricing valuation model, recognized on a straight-line basis over the service period of the award. For share-based compensation awards granted prior to but not yet vested as of April 1, 2006, share-based compensation expense for fiscal year 2007 was based on the grant-date fair value estimated using the Black-Scholes-Merton option- pricing valuation model and reduced for estimated forfeitures recognized on a straight-line basis over the service period for each separately vesting portion of the award. See Note 4—Share-Based Compensation in the Notes to the Consolidated Financial Statements for further discussion of share-based compensation. Our estimates of share-based compensation expense require a number of complex and subjective assumptions including our stock price volatility, employee exercise patterns, future forfeitures, dividend yield, related tax effects and the selection of an appropriate fair value model. We estimate expected share price volatility based on historical volatility using daily prices over the term of past options or purchase offerings, as we consider historical share price volatility as most representative of future stock option volatility. We estimate expected life based on historical settlement rates, which we believe are most representative of future exercise and post-vesting termination behaviors. We use historical data to estimate pre-vesting option forfeitures, and we record share-based compensation expense only for those awards that are expected to vest. The dividend yield assumption is based on the Company’s history and future expectations of dividend payouts. The assumptions used in calculating the fair value of share-based compensation expense and related tax effects represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, or if we decide to use a different valuation model, our share-based compensation expense could be materially different in the future from what we have recorded in the current period, which could materially affect our results of operations. Accounting for Income Taxes Logitech operates in multiple jurisdictions and its profits are taxed pursuant to the tax laws of these jurisdictions. The Company’s effective tax rate may be affected by the changes in or interpretations of tax laws in any given jurisdiction, utilization of net operating loss and tax credit carryforwards, changes in geographical mix of income and expense, and changes in management’s 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 actual current tax exposure together with assessing temporary differences resulting from 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 assess the likelihood that our deferred tax assets will be recovered from future taxable income, considering all available evidence such as historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax strategies. We believe it is more likely than not that such assets will be realized; however, ultimate realization could be negatively impacted by market conditions and other variables not known or anticipated at this time. In the event we determine that we would not be able to realize all or part of our deferred tax assets, an adjustment would be charged to earnings in the period such determination is made. Likewise, if we later determine that it is more likely than not that the deferred tax assets would be realized, the previously provided valuation allowance would be reversed. 36 In addition, the Company is subject to examination by various taxing authorities. We believe we have adequately provided in the financial statements for additional taxes that we estimate may be required to be paid as a result of such examinations. If the payment ultimately proves to be unnecessary, the reversal of the tax liabilities would result in tax benefits being recognized in the period we determine the liabilities are no longer necessary. If a final tax assessment exceeds our estimate of tax liabilities, an additional charge to expense will result. See Note 14 – Income Taxes in the Notes to the Consolidated Financial Statements for further discussion. Valuation of Long-Lived Assets We review long-lived assets, such as investments, property, plant and equipment, and goodwill and other intangible assets for impairment whenever events indicate that the carrying amount of these assets might not be recoverable. Factors considered important which could require us to review an asset for impairment include the following: • • • • significant underperformance relative to historical or projected future operating results; CG significant changes in the manner of use of the assets or the strategy for the Company’s overall business; significant negative industry or economic trends; significant decline in the Company’s stock price for a sustained period; and • market capitalization relative to net book value. Recoverability of investments, property, plant and equipment, and other intangible assets is measured by comparing the projected undiscounted cash flows the asset is expected to generate with its carrying amount. If an asset is considered impaired, the impairment to be recognized is measured by the excess of the carrying amount of the asset over its fair value. We evaluate goodwill for impairment on an annual basis and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable from our estimated future cash flows. Recoverability of goodwill is measured at the reporting unit level by comparing the reporting unit’s carrying amount, including goodwill, to the fair value of the reporting unit. If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired, and a second test is performed to measure the amount of impairment loss. While the Company has fully integrated all of its acquired companies, it continues to maintain discrete financial information for 3Dconnexion and accordingly determines impairment for the goodwill acquired with the 3Dconnexion acquisition at the entity level. All other acquired goodwill is evaluated for impairment at a total enterprise level. In determining fair value, we consider various factors including estimates of future market growth and trends, forecasted revenue and costs, expected periods over which our assets will be utilized, and other variables. We calculate the Company’s fair value based on the present value of projected cash flows using a discount rate determined by management to be commensurate to the risk inherent in the Company’s current business model. To date, we have not recognized any impairment of goodwill. Logitech bases its fair value estimates on assumptions it believes to be reasonable, but which are inherently uncertain. Recent Accounting Pronouncements In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 defines the threshold for recognizing the benefits of tax return positions in the financial statements as “more- likely-than-not” to be sustained by the taxing authority and provides guidance on the derecognition, measurement and classification of income tax uncertainties, along with any related interest and penalties. FIN 48 also includes guidance concerning accounting for income tax uncertainties in interim periods and increases the level of 37 disclosures associated with any recorded income tax uncertainties. FIN 48 is effective for fiscal years beginning after December 15, 2006 and is required to be adopted by the Company in the first quarter of fiscal year 2008. The cumulative effects, if any, of applying FIN 48 will be recorded as an adjustment to retained earnings as of the beginning of the period of adoption. We are evaluating the financial statement and disclosure impact of adopting FIN 48. In May 2007, the FASB issued FASB Staff Position FIN 48-1, “Definition of ‘Settlement’ in FASB Interpretation No. 48” (“FSP FIN 48-1”). FSP FIN 48-1 provides guidance on how a company should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. FSP FIN 48-1 is effective upon initial adoption of FIN 48, which we will adopt in the first quarter of fiscal year 2008. In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 affects other accounting pronouncements that require or permit fair value measurements where the FASB has previously concluded that fair value is the relevant measurement attribute. SFAS 157 does not require any new fair value measurements, but may change current practice in some instances. SFAS 157 is effective for fiscal years beginning after November 15, 2007. We will adopt SFAS 157 in the first quarter of fiscal year 2009, and we are evaluating the financial statement and disclosure impact. In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – including an amendment of FAS 115” (“SFAS 159”). SFAS 159 allows companies to choose, at specified election dates, to measure eligible financial assets and liabilities at fair value that are not otherwise required to be measured at fair value. Unrealized gains and losses shall be reported on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS 159 also establishes presentation and disclosure requirements. SFAS 159 is effective for fiscal years beginning after November 15, 2007 and is required to be adopted by the Company in the first quarter of fiscal year 2009. SFAS 159 will be applied prospectively. We are currently determining whether fair value accounting is appropriate for any of our eligible items and cannot estimate the financial statement and disclosure impact which SFAS 159 would have, if any. Results of Operations Year Ended March 31, 2007 Compared with Year Ended March 31, 2006 Net Sales Net sales by channel and product family for fiscal years 2007 and 2006 were as follows (in thousands): 2007 2006 Change % Net sales by channel: Retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OEM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total net sales . . . . . . . . . . . . . . . . . . . . . $1,844,395 222,174 $2,066,569 $1,588,033 208,682 $1,796,715 Net sales by product family: Retail – Cordless . . . . . . . . . . . . . . . . . . . . . . . Retail – Corded . . . . . . . . . . . . . . . . . . . . . . . . Retail – Video . . . . . . . . . . . . . . . . . . . . . . . . . Retail – Audio . . . . . . . . . . . . . . . . . . . . . . . . . Retail – Gaming . . . . . . . . . . . . . . . . . . . . . . . Retail – Remote Controls . . . . . . . . . . . . . . . . Retail – Other . . . . . . . . . . . . . . . . . . . . . . . . . OEM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 525,885 332,129 313,932 404,069 145,784 91,739 30,857 222,174 $ 448,358 314,695 273,340 334,496 136,944 57,227 22,973 208,682 Total net sales . . . . . . . . . . . . . . . . . . . . . $2,066,569 $1,796,715 16% 6% 15% 17% 6% 15% 21% 6% 60% 34% 6% 15% 38 Logitech’s cordless and corded product families include our mice, trackballs, keyboards and desktops; video is comprised of PC webcams; audio includes multimedia speakers and headset products for the PC, and mobile entertainment and communication platforms; gaming includes console and PC peripherals; remote controls includes our advanced remote controls for home-entertainment systems; and other is comprised of our 3D input device offerings and Slim Devices wireless music systems. Net sales in fiscal year 2007 increased significantly from the prior year due to continued growth in demand for the Company’s retail and OEM products. Retail sales growth was largely attributable to strong demand for desktops and keyboards, cordless mice, video, speakers and remote control products. OEM sales also returned to growth based on strong demand for embedded video. Approximately 55% of the Company’s sales were denominated in currencies other than the U.S. dollar in fiscal year 2007. Although the Euro continued to strengthen in fiscal year 2007, any potential benefit does not consider the impact that currency fluctuations had on our pricing strategy, resulting in lowering or raising selling prices in one currency to avoid disparity with U.S. dollar prices and to respond to currency-driven competitive pricing actions. We believe that currency fluctuations did not have a material impact on our revenue growth in fiscal year 2007. CG Retail Cordless. Sales of the Company’s retail cordless products in fiscal year 2007 increased 17% compared with fiscal year 2006, while units sold increased 15%. The growth was led by sales of cordless mice, which increased 25% in dollars and 18% in units, based on the success of new launches such as the MXTM Revolution cordless laser mouse, the VX RevolutionTM cordless laser mouse for notebooks and the V450 laser cordless mouse for notebooks. Cordless desktop and keyboard sales grew 11% while units increased 12%, anchored by the new ultra-high-end diNovo EdgeTM keyboard. Retail Corded. Desktops and keyboards also boosted sales of corded products by 6% with units increasing 7% compared with the prior year. The Logitech Alto, our portable notebook stand with an integrated keyboard, made a significant contribution to the growth in the category. Sales of corded mice declined 1% while units increased 3%, primarily due to a decline in gaming mice sales. Retail Video. Retail video sales and units increased 15% compared with the prior year. Demand for webcams was strong in the first three quarters of the fiscal year, but faltered in the fourth quarter due to significantly slower market growth and loss in market share. Retail Audio. Retail audio sales increased 21% and units increased 20% compared with the prior year. The growth came primarily from speakers, with sales increasing 35% and units increasing 38%, reflecting strength in both PC speakers and digital music speakers, including our portable speakers for iPod and the X-540 and X-230 PC speakers. Sales of headsets increased 24% and units grew 27%. Retail Gaming. Sales in retail gaming grew 6% while units sold declined 11% compared with the prior year. Sales of PC gaming peripherals returned to growth, increasing 63% while units increased 24%. Demand was particularly strong for the G25 Racing Wheel and the G15 Gaming Keyboard. Sales of console peripherals decreased 38% in dollars and 36% in units, as consumers waited for the transition to Playstation 3 which occurred late in the fiscal year. Our peripherals for Playstation 3 were ready for the transition, resulting in an increase of 9% in console gaming sales in the fourth quarter. Retail Remote Controls. Sales increased 60% and units sold increased 67% compared with the prior year, due to growth in demand, particularly for the touch-screen Harmony 1000. Retail Other. Sales in the other retail category increased 34% compared with the prior year, primarily due to sales of Slim Devices products, which were acquired in fiscal year 2007. Other retail includes sales of 3D control devices and Slim Devices wireless music systems. Retail Regional Performance. Retail sales in the Americas region increased 18%, with strong performance in the cordless product line and in Harmony remote controls. European retail sales increased 16%, due to strong 39 sales growth in audio, video and cordless products. In Asia Pacific, retail sales grew 6%, with the largest growth occurring in audio products. The growth in Asia Pacific was constrained by weakness in Japan, where we are implementing a management transition. OEM. OEM revenues increased 6% compared with fiscal year 2006 and represented 11% of total sales in fiscal year 2007, compared with 12% in the prior fiscal year. OEM units decreased 1%, reflecting a change in product mix from mice to video. The decline in OEM mice sales was more than offset by sales of embedded webcams and cordless desktops and keyboards. Gross Profit Gross profit for fiscal years 2007 and 2006 was as follows (in thousands): Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . $2,066,569 1,357,044 $1,796,715 1,222,605 Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 709,525 $ 574,110 15% 11% 24% Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34.3% 32.0% 2007 2006 Change % Gross profit consists of net sales, less cost of goods sold which includes materials, direct labor and related overhead costs, costs of manufacturing facilities, costs of purchasing components from outside suppliers, distribution costs and write-down of inventories. The increase in gross profit and improvement in gross margin resulted from the net sales increase over the prior year combined with improved product margins and reductions in distribution costs. The relative mix of product categories was consistent with the prior year. Due to product innovation and cost improvements, margins on new products launched in fiscal year 2007 were generally higher than the products replaced. In addition, distribution costs increased at a rate less than one-half the rate of net sales increase, due to the Company’s successful supply chain improvements in fiscal year 2007. Operating Expenses Operating expenses for fiscal years 2007 and 2006 were as follows (in thousands): 2007 2006 Change % Marketing and selling . . . . . . . . . . . . . . . . . . . . . . . . . . % of net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . Research and development . . . . . . . . . . . . . . . . . . . . . . % of net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . General and administrative . . . . . . . . . . . . . . . . . . . . . . % of net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . $272,264 $221,504 13.2% 12.3% 108,256 87,953 5.2% 4.9% 98,143 65,742 4.7% 3.7% 23% 23% 49% Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . $478,663 $375,199 28% Marketing and Selling Marketing and selling expense consists of personnel and related overhead costs, corporate and product marketing, promotions, advertising, trade shows, customer and technical support and facilities costs. Marketing and selling expense in fiscal year 2007 was higher than fiscal year 2006 primarily due to increased advertising and customer marketing programs to stimulate sales and higher personnel costs from headcount growth in support of increased retail business, including our continued expansion in Latin America, 40 Eastern Europe and China. Costs also increased due to product design and marketing expenses for new product launches. In addition, personnel costs included $7.2 million of share-based compensation cost resulting from the adoption of SFAS 123R on April 1, 2006. No share-based compensation expense was recognized in fiscal year 2006. Operating expenses also increased as a result of exchange rate changes on translation to the U.S. dollar financial statements, due to the weakening of the U.S. dollar relative to the Euro and Swiss franc. Research and Development Research and development expense consists of personnel and related overhead costs, contractors and outside consultants, supplies and materials, equipment depreciation and facilities costs, all associated with the design and development of new products and enhancements of existing products. Headcount increases in product research and development related to the audio, video and remote control product lines were the primary contributor to the increase in research and development costs. Personnel costs also increased due to $3.2 million of share-based compensation cost resulting from the adoption of SFAS 123R. No share-based compensation expense was recognized in fiscal year 2006. The impact of exchange rate changes on translation to the Company’s U.S. dollar financial statements was not material. CG General and Administrative General and administrative expense consists primarily of personnel and related overhead and facilities costs for the finance, information systems, executive, human resources and legal functions. General and administrative expense increased due to headcount additions to support business growth, costs incurred for Sarbanes-Oxley-related activity, increased costs associated with our implementation of Oracle 11i enterprise resource planning software, and increased occupancy costs related to infrastructure expansion. Personnel costs in fiscal year 2007 also include $7.1 million of share-based compensation expense resulting from the adoption of SFAS 123R. No share-based compensation expense was recognized in fiscal year 2006. The impact of exchange rates on translation to the Company’s U.S. dollar financial statements was not material. Interest Income, Net Interest income and expense for fiscal years 2007 and 2006 were as follows (in thousands): Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2007 $9,083 (350) $8,733 2006 $ 5,512 (1,921) $ 3,591 Change % 65% (82)% 143% Interest income increased over the prior year as a result of higher invested balances in cash and short-term investments, and higher returns earned on invested amounts. Interest expense was lower compared with fiscal year 2006 because of the conversion of the Company’s convertible bonds during the third quarter of fiscal year 2006. Other Income, Net Other income and expense for fiscal years 2007 and 2006 were as follows (in thousands): Foreign currency exchange gains, net . . . . . . . . . . . . . . . . Gain on sale of investments, net . . . . . . . . . . . . . . . . . . . . Write-off of investments . . . . . . . . . . . . . . . . . . . . . . . . . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other income, net 2007 $ 6,190 9,048 — 724 $15,962 2006 $ 7,580 560 (1,168) 380 $ 7,352 Change % (18)% 1516% (100)% (91)% 117% 41 The decrease in net foreign currency exchange gains for fiscal year 2007 resulted from fluctuations in exchange rates. The Company does not speculate in currency positions, but is alert to opportunities to maximize our foreign exchange gains. During fiscal year 2007, we sold our investment in Anoto Group AB and recognized a gain of $9.1 million. In fiscal year 2006, we recorded a gain on another investment and a $1.2 million impairment of our investment in A4Vision, Inc. Provision for Income Taxes The provision for income taxes and effective tax rate for fiscal years 2007 and 2006 were as follows (in thousands): Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . $25,709 $28,749 10.1% 13.7% 2007 2006 The provision for income taxes consists of income and withholding taxes. The decrease in effective tax rate is primarily due to changes in the geographic mix of income, the effect of implementation of SFAS 123R and the tax benefits recognized from discrete events, including the reinstatement of a research and development tax credit in the United States. Year Ended March 31, 2006 Compared with Year Ended March 31, 2005 Net Sales Net sales by channel and product family for fiscal years 2006 and 2005 were as follows (in thousands): 2006 2005 Change % Net sales by channel: Retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OEM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,588,033 208,682 $1,294,404 188,222 Total net sales . . . . . . . . . . . . . . . . . . . . . $1,796,715 $1,482,626 Net sales by product family: Retail – Cordless . . . . . . . . . . . . . . . . . . . . . . . Retail – Corded . . . . . . . . . . . . . . . . . . . . . . . . Retail – Video . . . . . . . . . . . . . . . . . . . . . . . . . Retail – Audio . . . . . . . . . . . . . . . . . . . . . . . . . Retail – Gaming . . . . . . . . . . . . . . . . . . . . . . . Retail – Remote Controls . . . . . . . . . . . . . . . . Retail – Other . . . . . . . . . . . . . . . . . . . . . . . . . OEM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 448,358 314,695 273,340 334,496 136,944 57,227 22,973 208,682 $ 453,519 296,346 201,626 158,134 146,517 19,320 18,942 188,222 Total net sales . . . . . . . . . . . . . . . . . . . . . $1,796,715 $1,482,626 23 % 11 % 21 % (1)% 6 % 36 % 112 % (7)% 196 % 21 % 11 % 21 % Net sales in fiscal year 2006 increased from the prior year due to continued growth in demand for the Company’s retail and OEM products. Retail sales growth was largely attributable to strong demand for the audio product line and increased demand for video and remote control products. OEM sales also returned to growth due to increased demand for mice. Approximately 50% of the Company’s sales were denominated in currencies other than the U.S. dollar in fiscal year 2006. Any benefit from the strengthening of the Euro in fiscal year 2006 does not consider the impact that currency fluctuations had on our pricing strategy, which may lower or raise selling prices in one currency to avoid disparity with U.S. dollar prices and to respond to currency-driven competitive pricing actions. We believe that currency fluctuations did not have a material impact on our revenue growth in fiscal year 2006. 42 Retail Cordless. Sales of the Company’s retail cordless products in fiscal year 2006 decreased 1% compared with fiscal year 2005, while units sold increased 14%. New cordless optical and notebook mice products launched during the year, including the V200 cordless notebook mouse, generated higher sales and units sold, increasing cordless mice sales by 8% and units by 21%. Cordless desktop sales declined 9% while units increased 5%, due to lower sales in the mid-range and high-end segments of the product line, offset by strong growth in the mass-market segment. Retail Corded. Sales of corded products increased 6% while units grew 13% compared with the prior year. Sales of corded mice increased 4% and units increased 11%, driven largely by the popularity of the MX518 gaming mouse and the G5 laser mouse. In addition, sales of corded desktops increased by 63% with units growing 64% due to the growth in sales of low-end corded desktops. Retail Video. Reflecting the increased use of video communications over the Internet, retail video sales grew 36% and units increased 53% compared with the prior year. Demand was strong across all categories, especially for lower-priced mass-market webcam products and certain high-end products, such as the QuickCam Fusion webcam. CG Retail Audio. Retail audio sales increased 112% and units increased 85% compared with the prior year. The significant growth came primarily from higher sales of speakers and PC headsets during fiscal year 2006. The Company’s speakers were the most significant contributors to the growth, with sales increasing 116% and units increasing 111%, reflecting continued strength in PC speakers throughout the year, as well as the success of the portable speakers for iPod. Sales of headsets for iPod and MP3 also contributed to the significant growth, with sales more than doubling and unit sales increasing 76%. Retail Gaming. Sales in retail gaming declined 7% while units sold grew 21% compared with the prior year. Sales of console gaming peripherals were down 9%. Last year, the Company achieved significant sales and unit shipments from cordless controllers for the Playstation®2 and Xbox™ platforms and from console steering wheels, reflecting the popularity of a newly-launched racing game. In fiscal 2006, sales of console peripherals decreased due to the anticipated transition to new console platforms and, in particular for wheels, by the lack of popular new driving games. Units sold for console gaming peripherals grew 45%, driven by accessories for the Playstation Portable (“PSP”). The market demand for PC gaming products remained stagnant and, as a result, sales of PC gaming peripherals declined 3% with units sold decreasing 3%. Retail Remote Controls. Sales increased 196% compared with fiscal year 2005, which was our first year of sales for Harmony remotes. Retail Other. Sales in the other retail category increased 21% compared with the prior year. Retail other in fiscal years 2006 and 2005 primarily included the Company’s 3D control devices. Retail Regional Performance. The Americas, Europe and Asia Pacific regions all achieved strong retail sales growth in fiscal year 2006. Retail sales in the Americas region grew 27%, driven by the significant growth in the audio category, as well as strong sales in video and remote control products. European retail sales increased 21%, largely due to strong sales growth in audio and video products. Remote controls also ramped up strongly in Europe. In Asia Pacific, retail sales grew 21%, led by strong sales of corded and audio products. OEM. OEM revenues increased 11% compared with fiscal year 2005 and represented 12% of total sales in fiscal year 2006, the same proportion as last year. OEM units increased 16%, mainly driven by strong growth in corded mice sales to PC manufacturers, supported by increased OEM sales of gaming products. The timing and size of the opportunities for Logitech’s OEM gaming products are difficult to predict, as they are sensitive to trends in these industries, including customer preferences, the popularity and nature of games introduced, and the products with which our products may be bundled. 43 Gross Profit Gross profit for fiscal years 2006 and 2005 was as follows (in thousands): Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . $1,796,715 1,222,605 $1,482,626 979,039 Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 574,110 $ 503,587 21% 25% 14% Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32.0% 34.0% 2006 2005 Change % The increase in gross profit resulted from the net sales increase over the prior year. The decline in the Company’s gross margin is primarily due to the higher percentage of audio sales in fiscal year 2006, representing 19% of total net sales compared with 11% in fiscal year 2005. Margins in the audio category, although improved from the prior year, are lower than the Company’s other product categories. Operating Expenses Operating expenses for fiscal years 2006 and 2005 were as follows (in thousands): 2006 2005 Change % Marketing and selling . . . . . . . . . . . . . . . . . . . . . . . . . . % of net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . Research and development . . . . . . . . . . . . . . . . . . . . . . % of net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . General and administrative . . . . . . . . . . . . . . . . . . . . . . % of net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . $221,504 $200,350 12.3% 87,953 4.9% 65,742 3.7% 13.5% 73,900 5.0% 57,663 3.9% 11% 19% 14% Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . $375,199 $331,913 13% Marketing and Selling Higher marketing and selling expense in absolute dollars and as a percentage of sales compared with the prior year reflects increased customer marketing development initiatives, higher personnel costs and higher outside commission expenses to support higher retail sales levels and expanded territorial coverage. The Company increased its market penetration in developing markets, such as Latin America, Eastern Europe and China, by securing new channel partners, strengthening relationships with existing partners, and investing in additional marketing initiatives. In addition, the Company’s operating expenses benefited from the strengthening of the U.S. dollar relative to the Euro and Swiss franc due to exchange rate changes on translation to the U.S. dollar financial statements. Research and Development The increase in research and development expense reflects the Company’s commitment to continued investments in research and product development efforts. Investments in audio, video and remote control groups were the most significant contributors to the increase, driven by higher headcount and related personnel costs, as well as higher prototyping expenses. The impact of exchange rate changes on translation to the Company’s U.S. dollar financial statements was not material. General and Administrative General and administrative expense increased primarily as a result of increased headcount to support the business growth. In addition, costs incurred for Sarbanes-Oxley consultation and implementation and for process changes occurring in the Company contributed to the higher general and administrative expense. The Company’s operating expenses also benefited from the strengthening of the U.S. dollar relative to the Euro and Swiss franc due to exchange rate changes on translation to the U.S. dollar financial statements. 44 Interest Income, Net Interest income and expense for fiscal years 2006 and 2005 were as follows (in thousands): Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,512 (1,921) $ 3,771 (3,630) 46 % (47)% Interest income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,591 $ 141 2447% 2006 2005 Change % Interest income was higher compared with the prior year due to higher invested cash balances and higher returns earned on invested amounts. Interest expense decreased due to lower interest, including lower amortization of the accreted redemption premium, as a result of conversion of the convertible bonds during the third quarter of fiscal year 2006. Other Income, Net CG Other income and expense for fiscal years 2006 and 2005 were as follows (in thousands): 2006 2005 Change % Foreign currency exchange gains, net . . . . . . . . . Gain on sale of investments . . . . . . . . . . . . . . . . . Write-off of investments . . . . . . . . . . . . . . . . . . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,580 560 (1,168) 380 $3,522 — — 269 Other income, net . . . . . . . . . . . . . . . . . . . . . . . . $ 7,352 $3,791 115% — — (41)% 94% The increase in net foreign currency exchange gains in fiscal year 2006 primarily resulted from a one-time gain of $3.1 million related to an exchange of the Company’s Euro currency for U.S. dollars. The Company does not speculate in currency positions, but is alert to opportunities to maximize its foreign exchange gains. The Company also impaired an investment and recorded a gain on the sale of another investment. Provision for Income Taxes The provision for income taxes and effective tax rate for fiscal years 2006 and 2005 were as follows (in thousands): Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . $28,749 $26,340 13.7% 15.0% 2006 2005 The provision for income taxes consists of income and withholding taxes. The decrease in effective tax rate is primarily due to changes in the geographic mix of income. Liquidity and Capital Resources Cash Balances, Available Borrowings, and Capital Resources At March 31, 2007, net working capital was $542.4 million, compared with $407.9 million at March 31, 2006. The increase in working capital was primarily due to a significant increase in cash flow from operations, partially offset by an increase in accrued liabilities. Cash, cash equivalents and short-term investments totaled $410.8 million at March 31, 2007, an increase of $165.8 million from March 31, 2006. Operating activities provided $303.8 million in cash. We used $138.1 million to repurchase shares under the share buyback program and $47.2 million for capital expenditures, including investments for information system upgrades, manufacturing equipment and tooling costs. We also had net purchases of short-term investments of $214.6 million, and used $20.6 for an acquisition. 45 The Company’s normal short-term liquidity and long-term capital resource requirements are provided from three sources: cash flow generated from operations, cash and cash equivalents on hand and borrowings, as needed, under our credit facilities. We have lines of credit with several European and Asian banks totaling $126.2 million as of March 31, 2007. As is common for businesses in European and Asian countries, these credit lines are uncommitted and unsecured. Despite the lack of formal commitments from our banks, we believe these lines of credit will continue to be made available because of our long-standing relationships with these banks. As of March 31, 2007, $112.0 million was available under these facilities. There are no financial covenants under these lines of credit with which the Company must comply. Cash Flow from Operating Activities The following table presents selected financial information and statistics for fiscal years 2007, 2006 and 2005 (dollars in thousands): 2007 2006 2005 Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Days sales in accounts receivable (DSO) (1) . . . . . . . . . Inventory turnover (ITO) (2) . . . . . . . . . . . . . . . . . . . . . Net cash provided by operating activities . . . . . . . . . . $310,377 $217,964 $542,356 54days 6.2x $303,825 $289,849 $196,864 $407,923 56 days 6.4x $152,217 $229,234 $175,986 $452,663 51 days 6.1x $213,674 (1) DSO is determined using ending accounts receivable as of the most recent quarter-end and net sales for the (2) most recent quarter. ITO is determined using ending inventories and annualized cost of goods sold (based on the most recent quarterly cost of goods sold). During fiscal year 2007, the Company’s operating activities generated net cash of $303.8 million compared with $152.2 million in the prior year. Higher accounts receivable and inventory balances reflected increased sales levels, but were more than offset by increased accounts payable and accrued liabilities balances. Accounts receivable increased 7% in fiscal year 2007 compared with the 15% increase in net sales. Combined with higher collections of accounts receivable, DSO improved by 2 days as of March 31, 2007 compared with 2006. The higher levels of accounts payable and accrued liabilities reflected more effective working capital management. During fiscal year 2006, our operating activities generated net cash of $152.2 million compared with $213.7 million in the prior year. Stronger business results were offset by increased accounts receivable balances, resulting from significantly higher sales in fiscal year 2006 and an increase in DSO. Although partially offset by higher collections, accounts receivable increased to $289.8 million at March 31, 2006, compared with $229.2 million at March 31, 2005. In addition, we increased our inventory levels and purchases to respond to the sales increases in fiscal year 2006. At March 31, 2006, inventory was $196.9 million compared with $176.0 million at March 31, 2005. The increase was predominantly in finished goods, intended to ensure sufficient supply on hand to meet demand. Increased operating expenses also affected cash flow from operating activities in fiscal year 2006. 46 Cash Flow from Investing Activities Cash flows from investing activities during fiscal years 2007, 2006 and 2005 were as follows (in thousands): Purchases of property, plant and equipment . . . . . . . . Purchases of short-term investments . . . . . . . . . . . . . . Sales of short-term investments . . . . . . . . . . . . . . . . . . Sale of investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . Premiums paid on cash surrender value life insurance policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisitions and investments, net of cash acquired . . . 2007 2006 2005 $ (47,246) (416,475) 201,850 12,874 $(54,102) $(40,541) — — — — — — (537) (20,524) (1,464) 860 — (30,494) Net cash used in investing activities . . . . . . . . . . $(270,058) $(54,706) $(71,035) During fiscal year 2007, we invested in $214.6 million of U.S. Government Guaranteed Student Loan Issues, which increased interest income with minimal additional principal risk. We sold our investment in Anoto Group, AB for $24.2 million, and received $12.9 million in fiscal year 2007 and $11.3 million in April 2007. We acquired Slim Devices Inc. in October 2006 for $20.4 million, net of $0.2 million cash acquired and including $0.6 million in transaction costs. We also invested participant deferrals of $0.5 million from the management deferred compensation plan in life insurance contracts. CG During fiscal year 2006, the Company’s purchases of property, plant and equipment were primarily for construction of the new factory in Suzhou, China, information system upgrades, and normal expenditures for tooling. The Company also invested participant deferrals of $1.5 million from its management deferred compensation plan in life insurance contracts. In addition, the Company received proceeds from the sale of an investment. The Company’s purchases of property, plant and equipment in fiscal year 2005 were primarily normal expenditures for tooling costs, machinery and equipment, and computer equipment and software. Capital expenditures also included the cost of information system upgrades and construction of a new factory in Suzhou, China. In connection with the acquisition of Intrigue Technologies in May 2004, the Company paid net cash of $29.8 million, acquiring all of Intrigue’s outstanding shares. Also, the Company made other equity investments of $0.6 million, primarily for funding in A4Vision, Inc., a privately held company from which Logitech licensed face tracking software used in its PC webcams. Cash Flow from Financing Activities The following tables present information on our cash flows from financing activities, including information on our share repurchases during fiscal years 2007, 2006 and 2005 (in thousands except per share amounts): . . . . . . . . . Borrowings (repayments) of short-term debt . . . . . . . . . . . . . . . . . . . . Repayments of long-term debt Purchases of treasury shares . . . . . . . . . . . . . . . . . . . . . . Proceeds from sale of shares upon exercise of options and purchase rights . . . . . . . . . . . . . . . . . . . . . . . . . . . Excess tax benefits from share-based compensation . . . 2007 2006 2005 $ (2,181) — (138,095) $ 5,235 (43) (241,352) $ (4,073) (475) (134,525) 44,706 13,076 49,206 — 45,985 — Net cash used in financing activities . . . . . . . . . . . . $ (82,494) $(186,954) $ (93,088) Number of shares repurchased . . . . . . . . . . . . . . . . . . . . Value of shares repurchased . . . . . . . . . . . . . . . . . . . . . . Average price per share . . . . . . . . . . . . . . . . . . . . . . . . . . 5,610 $ 138,095 24.62 $ 12,276 $ 241,352 19.66 $ 11,100 $ 134,525 12.12 $ 2007 2006 2005 47 During fiscal year 2007, we used $138.1 million for share repurchases of approximately 5.6 million shares pursuant to the Company’s buyback programs announced in June 2005 and May 2006. The buyback program announced in May 2006 authorizes the purchase of up to $250.0 million in Logitech shares. The buyback program announced in June 2005 authorized the purchase of up to CHF 300.0 million (approximately $235.0 million based on exchange rates at the date of announcement) in Logitech shares. Cash flow from financing activities included $44.7 million in proceeds from the sale of 5.2 million shares under the Company’s employee option and share purchase plans, and $13.1 million related to tax benefits recognized on the exercise of share-based payment awards. Short-term debt was reduced by $2.2 million. Cash used in financing activities during fiscal year 2006 included share repurchases of 12.3 million shares, totaling $241.4 million pursuant to the Company’s buyback programs announced in April 2004 and June 2005. Proceeds also included $49.2 million from the sale of 7.1 million shares under the Company’s employee option and share purchase plans and $5.2 million from short-term borrowing in Japanese yen, to benefit from low interest rates and to offset exposures in yen-denominated assets. During fiscal year 2006, all of the Company’s convertible bonds were converted into a total of 10,897,386 Logitech registered shares through delivery of treasury shares which had no cash impact on financing activities. Cash used in financing activities during fiscal year 2005 included share repurchases of 11.1 million shares, totaling $134.5 million pursuant to the Company’s buyback program announced in April 2004. Debt repayments totaling $4.5 million primarily related to the Swiss mortgage loan that matured in April 2004. Proceeds totaling $46.0 million were realized from the sales of shares pursuant to the Company’s employee option and share purchase plans. Cash Outlook Our working capital requirements and capital expenditures may increase to support future expansion of Logitech operations. Future acquisitions or expansion of our operations may be significant and may require the use of cash. In May 2006, we announced the approval by our board of directors of a new share buyback program authorizing the repurchase of up to $250 million of our shares. The program expires at the Company’s 2009 Annual General Meeting at the latest. Under this program, we repurchased 2.7 million shares for $76.6 million during the year ended March 31, 2007. The approved amount remaining under this program at March 31, 2007 is $173.4 million. We plan to continue repurchasing shares in fiscal year 2007 under this program. In June 2005, we announced the approval by our board of directors of a buyback program of up to CHF 300.0 million (approximately $235.0 million based on exchange rates at the date of announcement). Under this program, which was completed in the quarter ended December 31, 2006, we repurchased 2.9 million shares for $61.5 million in fiscal year 2007, and a total of 11.3 million shares for $236.1 million. Also in fiscal year 2008, the Company plans to continue investing in leasehold improvements, tooling and other manufacturing and operating infrastructure. In October 2006, we acquired Slim Devices, Inc. (“Slim Devices”), a privately held company specializing in network-based audio systems for digital music. Under the terms of the purchase agreement, we acquired all of the outstanding shares of Slim Devices for $20.6 million in cash, plus a possible performance-based payment, payable in the first calendar quarter of 2010. The performance-based payment is based on net revenues from the sale of products and services in calendar year 2009 derived from Slim Devices’ technology. No payment is due if the applicable net revenues total $40 million or less. The maximum performance-based payment is $89.5 million. The total performance-based payment amount, if any, will be recorded in goodwill and will not be known until the end of calendar year 2009. 48 In May 2004, we acquired Intrigue Technologies, Inc., a privately held provider of advanced remote controls. The purchase agreement provides for deferred payments to Intrigue’s former shareholders based on the highest net sales from products incorporating Intrigue’s technology during the revenue measurement period, defined as any consecutive four-quarter period beginning in April 2006 through September 2007. The total deferred payment amount will vary with net sales in the revenue measurement period. The payment amount would approximate 27% of such net sales at the highest net sales level, although the percentage could be higher at lower net sales levels. Based on the net sales of remote controls for fiscal year 2007, the Company will be obligated to make a deferred payment of at least $33.7 million. The total deferred payment amount could be higher, and will not be known until the end of the revenue measurement period. The total deferred payment will be paid by December 31, 2007. As of March 31, 2007, a deferred payment of $33.7 million has been recorded as an adjustment to goodwill. The Company believes that its cash and cash equivalents, cash flow generated from operations, and available borrowings under its bank lines of credit will be sufficient to fund capital expenditures and working capital needs for the foreseeable future. CG Contractual Obligations and Commitments As of March 31, 2007, the Company’s outstanding contractual obligations and commitments included: (i) amounts drawn on our credit lines, (ii) equipment financed under capital leases, (iii) facilities leased under operating lease commitments, and (iv) purchase commitments and obligations. The following summarizes our contractual obligations and commitments at March 31, 2007 (in thousands): Lines of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred payment on Intrigue Technologies, Inc. acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchase commitments – inventory . . . . . . . . . . . . . . . . . Purchase obligations – capital expenditures . . . . . . . . . . . Purchase obligations – operating expenses . . . . . . . . . . . . Total $ 11,900 4 62,878 Less than 1 year $ 11,900 4 12,060 Payments Due by Period 1-3 years 3-5 years More than 5 years $ — $ — $ — — 15,237 — 20,422 — 15,159 33,685 124,144 21,432 28,286 33,685 124,144 21,432 28,286 — — — — — — — — — — — — Total contractual obligations and commitments . . . . . . . . $282,329 $2 1,511 3 $20,422 $15,159 $15,237 For additional information on the Company’s outstanding debt obligations, see Note 10 – Financing Arrangements in the Notes to Consolidated Financial Statements. Lines of Credit The Company’s line of credit is denominated in Japanese yen and is due on demand. Operating and Capital Leases The remaining terms on our non-cancelable operating leases expire in various years through 2015. We had minimal commitments on capital leases as of March 31, 2007. Purchase Commitments – Inventory We had fixed purchase commitments for inventory of $124.1 million as of March 31, 2007. Inventory purchase commitments are made in the normal course of business and are to original design manufacturers, contract manufacturers and other suppliers. Although open purchase commitments are considered enforceable and legally binding, the terms generally allow us the option to reschedule and adjust our requirements based on business needs prior to the delivery of the purchases. The purchase commitments for inventory are expected to be fulfilled within the fiscal quarter ending June 30, 2007. 49 Purchase Obligations Purchase obligations represent an estimate of all open purchase orders and contractual obligations for capital and other expenditures, for which the goods or services are not yet received. We had purchase obligations for manufacturing equipment, tooling and leasehold improvements of $21.4 million as of March 31, 2007. We also had other commitments of $28.3 million for consulting, information technology services, marketing arrangements and advertising. Although open purchase orders are considered enforceable and legally binding, the terms generally allow the Company the option to reschedule and adjust our requirements based on business needs prior to delivery of goods or performance of services. Off-Balance Sheet Arrangements The Company has not entered into any transactions with unconsolidated entities whereby we have financial guarantees, subordinated retained interests, derivative instruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other obligation under a variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the Company. Guarantees The Company has guaranteed the purchase obligations of some of its contract manufacturers to certain component suppliers. These guarantees have a term of one year and are automatically extended for one or more additional years as long as a liability exists. The amount of the purchase obligations of these manufacturers varies over time, and therefore the amounts subject to Logitech’s guarantees similarly varies. At March 31, 2007, the amount of these outstanding guaranteed purchase obligations was approximately $3.1 million. We do not believe, based on historical experience and information currently available, that it is probable that any amounts will be required to be paid under these guarantee arrangements. Indemnifications The Company indemnifies certain of its suppliers and customers for losses arising from matters such as intellectual property rights and safety defects, subject to certain restrictions. The scope of these indemnities varies and may include indemnification for damages and expenses, including reasonable attorneys’ fees. No amounts have been accrued for indemnification provisions as of March 31, 2007. We do not believe, based on historical experience and information currently available, that it is probable that any amounts will be required to be paid under these indemnification arrangements. Research and Development For a discussion of the Company’s research and development activities, patents and licenses, please refer to Item 4B “Business Overview.” Trend Information For a discussion of significant trends in the Company’s financial condition and results of operations, please refer to Item 5 “Results of Operations” and “Liquidity and Capital Resources.” ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES A. Directors and Senior Management Information concerning Directors and Senior Management of Logitech appears in Section 3 “The Board of Directors” and Section 4 “Senior Management” in Exhibit 15.1 to the Form 20-F and is incorporated herein by reference. 50 B. Compensation of Executive Officers and Directors Information concerning the compensation of Executive Officers and Directors of Logitech appears in Section 5.2 “Compensation of Directors and Executive Officers” in Exhibit 15.1 to the Form 20-F and is incorporated herein by reference. C. Board Practices Information concerning Logitech’s board practices appears in Section 3 “The Board of Directors” in Exhibit 15.1 to the Form 20-F and is incorporated herein by reference. D. Employees The number of people employed worldwide by Logitech was as follows: Category Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Manufacturing and distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . Marketing, sales and support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . As of March 31, 2007 2006 2005 853 5,071 769 738 7,431 807 5,081 678 642 7,208 645 5,108 639 506 6,898 CG Of the total number of employees as of March 31, 2007, 1,181 were in North America, 679 were in Europe and 5,571 were in Asia. None of Logitech’s U.S. employees are represented by a labor union or are subject to a collective bargaining agreement. Certain foreign countries, such as China, provide by law for employee rights, which include requirements similar to collective bargaining agreements. We believe that our employee relations are good. E. Share Ownership Share and option ownership of Logitech’s Directors and Executive Officers appears in Section 5.5 “Share Ownership of Directors and Executive Officers” and Section 5.6 “Option Ownership of Directors and Executive Officers” in Exhibit 15.1 to the Form 20-F and is incorporated herein by reference. Information concerning Logitech’s employee share-based compensation arrangements including stock option plans and employee share purchase plans is disclosed in Note 4 – ”Share-Based Compensation” of the Notes to Consolidated Financial Statements included in Item 18 “Financial Statements.” ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS A. Major Shareholders The following table sets forth certain beneficial ownership information as of March 31, 2007 of each shareholder known by Logitech to beneficially own 5% or more of the Company’s shares. Logitech does not believe it is directly or indirectly owned or controlled by any corporation or by any foreign government. The voting rights of Logitech shares held by major shareholders are the same as the voting rights of shares held by all other shareholders. The Company is unaware of any arrangement that might result in a change in its control. Name of Beneficial Owner Shares Beneficially Owned (1) Percentage (2) Daniel Borel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,000,000 5.7% 51 (1) Beneficial ownership is determined in accordance with rules of the SEC that deem shares to be beneficially owned by any person who has voting or investment power with respect to such shares. The beneficial owner has furnished this information. The person named in the table has sole voting and sole investment power to community property laws where with respect applicable. Shares subject to options that are currently exercisable or exercisable within 60 days after March 31, 2007 are deemed to be issued and beneficially owned by the person holding such options for the purpose of computing the percentage ownership of such person but are not treated as issued for the purpose of computing the percentage ownership of any other person. to all shares shown as beneficially owned, subject (2) Percentage ownership is calculated based on 191,606,620 shares issued as of March 31, 2007. On May 4, 2007, we announced in the Swiss Official Gazette of Commerce that Logitech’s ownership of its own shares in treasury had exceeded 5% of total shares issued. As of May 10, 2007, we held approximately 5.2% of total shares issued. B. Related Party Transactions In connection with our investment in the Anoto Group AB, a Logitech executive was elected to the Anoto board of directors. Anoto is a publicly traded Swedish high technology company from which Logitech licenses digital pen technology. During fiscal year 2007, the Company sold its investment in Anoto. The license agreement requires Logitech to pay a license fee for the rights to use the Anoto technology and a license fee on the sales value of digital pen solutions sold by Logitech. Also, the agreement includes non-recurring engineering (“NRE”) service fees primarily for specific development and maintenance of Anoto’s licensed technology. During fiscal years 2007, 2006 and 2005 expenses incurred for license fees to Anoto were $0.3 million, $0.5 million and $0.7 million. Also, in connection with the Company’s investment in A4Vision, Inc. a Logitech executive was appointed to the A4Vision board of directors until March 2007, when A4vision was acquired. A4Vision was a privately held company from which Logitech licensed face tracking software. The license agreement required Logitech to pay a license fee based on the number of its products sold with A4Vision’s licensed software. We did not pay any license fees to A4Vision during fiscal year 2007. During fiscal year 2006, expenses incurred for license fees to A4Vision were immaterial. Expenses incurred for license fees to A4Vision amounted to $0.2 million in fiscal year 2005. C. Interests of Experts and Counsel Not applicable. ITEM 8. FINANCIAL INFORMATION A. Consolidated Statements and Other Financial Information Please refer to Item 18 “Financial Statements” and pages F-1 through F-30 of our Consolidated Financial Statements. In addition, for more information regarding our results of operations, please refer to Item 5 “Operating and Financial Review and Prospects.” Legal Proceedings From time to time, Logitech becomes involved in claims and legal proceedings that arise in the ordinary course of its business. The Company is currently subject to several such claims and legal proceedings and intends to defend against them vigorously. However, there can be no assurance that our defenses will be successful, or that any judgment or settlement in any of these lawsuits or claims would not have a material adverse impact on the Company’s business, financial condition and results of operations. 52 Further, because of technological changes in the computer and consumer electronics industries, current extensive patent coverage granted to third parties, and the rapid rate of issuance of new patents, it is possible certain components of our products or our business methods may unknowingly infringe existing patents of third parties. The Company has from time to time been notified that it may be infringing certain patents or other intellectual property rights of others. Pending and future litigation and disputes arising over patent infringement claims, or over commercial matters, or other litigation involving us, whether as plaintiff or defendant, regardless of outcome, may result in significant diversion of our management and technical resources, result in costly litigation, cause product shipment delays, or require us to enter into royalty or licensing agreements, any of which could adversely affect our business, financial condition and operating results. Dividends Under Swiss law, a corporation pays dividends upon a vote of its shareholders. This vote typically follows the recommendation of the corporation’s board of directors. Logitech has not paid dividends since 1996 in order to retain earnings for use in the operation and expansion of the business and, in more recent years, to repurchase its shares. CG B. Significant Changes None. ITEM 9. THE OFFER AND LISTING A. Offer and Listing Details Stock Price Information Shares Logitech’s shares are listed and traded on both the SWX 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. 53 SWX Swiss Exchange The following table sets forth certain historical share price information for the Company’s shares traded on the SWX Swiss Exchange. The information presented is based on (i) the high and low closing sales prices quoted in Swiss francs for the shares on the SWX Swiss Exchange, and (ii) the U.S. dollar equivalent based on the noon buying rate on the trading day of the month in which the high or low closing sales price occurred. The noon buying rate is the rate in New York City for cable transfers in selected currencies as certified for customs purposes by the Federal Reserve Bank of New York. Share prices have been adjusted to reflect two-for-one share splits in June 2005 and July 2006. Annual Highs and Lows: Fiscal 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fiscal 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fiscal 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fiscal 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fiscal 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Quarterly Highs and Lows: Fiscal 2006: First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fiscal 2007: First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monthly Highs and Lows (over the most recent six month period): October 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . January 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . February 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . March 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Price per Registered Share on the Swiss Exchange High CHF Low CHF High $ Low $ 20.82 16.00 19.23 32.50 37.50 20.93 26.18 31.50 32.50 27.10 27.75 36.85 37.50 33.20 36.00 36.85 37.50 36.50 34.05 7.88 9.62 13.19 17.10 21.15 17.10 20.60 23.88 25.45 22.50 21.15 26.30 30.55 26.30 32.70 34.35 34.10 31.95 30.55 13.15 12.94 16.06 25.28 30.04 16.36 20.31 23.87 25.28 21.25 22.29 30.83 30.04 26.57 28.88 30.83 30.04 29.24 28.04 5.25 7.07 10.74 14.37 16.88 14.37 15.80 18.45 19.74 18.67 16.88 21.12 25.17 21.12 26.24 28.55 27.21 26.21 25.17 54 Nasdaq Global Select Market The following table sets forth certain historical share price information for the Company’s shares traded on the Nasdaq Global Select Market. Prior to October 2006, Logitech’s American Depositary Shares (“ADSs”) traded on the Nasdaq Global Select Market, with each ADS representing one registered share. In October 2006, we exchanged Logitech shares for ADSs on a one-for-one basis, so that the same Logitech shares trade on the Nasdaq Global Select Market as on the SWX Swiss Exchange. The information presented below is based on the high and low closing sales prices quoted in U.S. dollars for Logitech shares or ADSs on the Nasdaq Global Select Market. Share prices have been adjusted to reflect two-for-one splits in June 2005 and July 2006. Annual Highs and Lows: Fiscal 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fiscal 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fiscal 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fiscal 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fiscal 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Quarterly Highs and Lows: Fiscal 2006: First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fiscal 2007: First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monthly Highs and Lows (over the most recent six month period): October 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . January 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . February 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . March 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CG Price per share on Nasdaq High $ 13.32 12.83 16.48 25.66 30.56 16.44 20.38 24.24 25.66 22.00 22.51 30.56 29.40 26.50 29.56 30.56 29.40 29.37 28.37 Low $ 5.47 6.99 10.50 14.28 17.17 14.28 16.20 18.55 19.61 18.62 17.17 21.26 25.53 21.26 26.15 28.07 27.35 25.94 25.53 B. Plan of Distribution Not applicable. C. Markets Logitech Shares Since 1988 Logitech’s shares have traded on the SWX Swiss Exchange. Prior to October 2006, Logitech’s American Depositary Shares (“ADSs”) traded on the Nasdaq Global Select Market, with each ADS representing one registered share. In October 2006, we exchanged Logitech shares for our ADSs on a one-for-one basis, so that the same Logitech shares trade on the Nasdaq Global Select Market as on the SWX Swiss Exchange. The trading symbol for Logitech shares is LOGI on Nasdaq and LOGN on SWX. As of March 31, 2007, there were 191,606,620 shares issued (including 9,363,639 shares held as treasury stock) held by 11,787 holders of record. 55 D. Selling Shareholders Not applicable. E. Dilution Not applicable. F. Expenses of the Issue Not applicable. ITEM 10. ADDITIONAL INFORMATION A. Share Capital Not applicable. B. Memorandum and Articles of Incorporation Set forth below is certain information and references to information concerning Logitech’s share capital, material provisions of applicable Swiss law and the Company’s Articles of Incorporation and Organizational Regulations (bylaws). Logitech incorporates by reference an English translation of the Company’s Articles of Incorporation as set forth in Exhibit 1.1 to its Report on Form 6-K filed with the SEC on August 4, 2006 and its Organizational Regulations, as amended and set forth in Exhibit 15.1 to the Company’s Report on Form 6-K filed with the SEC on November 3, 2006. The information below and information incorporated by reference are a summary which does not purport to be complete and are qualified in their entirety by reference to the Articles of Incorporation, the Organizational Regulations, and Swiss law. Purpose Article 2 of the Company’s Articles of Incorporation establishes the principal objective of the Company as the coordination of the activity of its Swiss and foreign subsidiaries. Board of Directors Information concerning directors’ power under the Company’s bylaws and Swiss law appears in Section 3 “Board of Directors” in Exhibit 15.1 to this Form 20-F and is incorporated herein by reference. Rights, Preferences and Restrictions Information concerning the rights, preferences and restrictions attaching to each of the Company’s share categories appears in Section 2 “Capital Structure” and Section 6 “Shareholders’ Participation Rights” in Exhibit 15.1 to this Form 20-F and is incorporated herein by reference. General Meeting of Shareholders Information concerning the conditions governing the manner in which the Company’s Annual General Meeting of Shareholders is convoked and conditions for admission appears in Section 6.3 “Convocation of the General Meeting of Shareholders” in Exhibit 15.1 to this Form 20-F and is incorporated herein by reference. Change of Control Provisions Information concerning the provisions relating to a change of control of the Company appears in Section 7 “Mandatory Offer and Change of Control Provisions” in Exhibit 15.1 to this Form 20-F and is incorporated herein by reference. 56 Disclosure of Shareholder Ownership Information concerning ownership thresholds above which shareholder ownership must be disclosed appears in Section 1.2 “Significant Shareholders” in Exhibit 15.1 to this Form 20-F and is incorporated herein by reference. C. Material Contracts There were no material contracts entered into other than in the ordinary course of business during the previous two years immediately preceding filing of this Annual Report on Form 20-F. D. Exchange Controls As a Swiss corporation, Logitech is subject to requirements not generally applicable to United States corporations. Among other things, Logitech’s issuances of capital stock generally must be submitted for approval at a general meeting of shareholders. In addition, under Swiss law, the issuance of capital stock is generally subject to shareholder preemptive rights, except to the extent that these preemptive rights have been excluded or limited by the shareholders. CG There are no legislative or other legal provisions currently in effect in Switzerland or arising under Logitech’s Articles of Incorporation restricting the export or import of capital, or that affect the remittance of dividends, interest or other payments to non-resident holders of Logitech securities. Cash dividends payable in Swiss francs on shares may be officially transferred from Switzerland and converted into any other convertible currency. There are no limitations imposed by Swiss laws or Logitech’s Articles of Incorporation on the right of non-Swiss residents to hold or vote Logitech shares. E. Taxation The following is a summary of certain Swiss tax matters that may be relevant with respect to the acquisition, ownership and disposition of shares. This summary addresses laws in Switzerland currently in effect, as well as the 1997 Convention (entered into force on December 1997) between the United States of America and the Swiss Confederation for the Avoidance of Double Taxation with Respect to Taxes on Income (the “Treaty”), both of which are subject to change (or changes in interpretation), possibly with retroactive effect. For purposes of the Treaty and the Internal Revenue Code of 1986, as amended (the “Code”), the Swiss tax consequences discussed below also generally apply to United States shareholders. Swiss Taxation Gain on Sale Under Swiss law, a holder of shares who (i) is a non-resident of Switzerland, (ii) during the taxable year has not engaged in a trade or business through a permanent establishment within Switzerland and (iii) is not subject to taxation by Switzerland for any other reason, will be exempted from any Swiss federal, cantonal or municipal income or other tax on gains realized during the year on the sale of shares. Stamp, Issue and Other Taxes Switzerland generally does not impose stamp, registration or similar taxes on the sale of shares by a holder thereof unless such sale or transfer occurs through or with a Swiss securities dealer (as defined in the Swiss Stamp Duty Law). 57 Withholding Tax Under Swiss law, any dividends paid in respect of shares will be subject to the Swiss Anticipatory Tax at the rate of 35%, and the Company will be required to withhold tax at this rate from any dividends paid to a holder of registered shares. Such dividend payments may qualify for refund of the Swiss Anticipatory Tax by reason of the provisions of a double tax treaty between Switzerland and the country of residence or incorporation of a holder, and in such cases such holder will be entitled to claim a refund of all or a portion of such tax in accordance with such treaty. The Swiss-U.S. tax treaty provides for a mechanism whereby a United States resident or United States corporations can generally seek a refund of the Swiss Anticipatory Tax paid on dividends in respect of registered shares, to the extent such withholding exceeds 15%. F. Dividends and Paying Agents Not applicable. G. Statement by Experts Not applicable. H. Documents on Display Whenever a reference is made in this Form 20-F to any contract, agreement or other document, the reference may not be complete and you should refer to the copy of that contract, agreement or other document filed as an exhibit to one of our previous SEC filings. We file annual and special reports and other information with the SEC. You may read and copy all or any portion of this Form 20-F and any other document we file with the SEC at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information about the public reference room. Such material may also be obtained at the Internet site the SEC maintains at www.sec.gov. I. Subsidiary Information Not applicable. ITEM 11. 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 global concern, the Company faces exposure to adverse movements in foreign currency exchange rates and interest rates. These exposures may change over time as business practices evolve and could have a material adverse impact on the Company’s financial results. Foreign Currency Exchange Rates The Company is exposed to foreign currency exchange rate risk as it transacts business in multiple foreign currencies, including exposure related to anticipated sales, anticipated purchases and assets and liabilities denominated in currencies other than the U.S. dollar. Logitech transacts business in over 30 currencies worldwide, of which the most significant to operations are the Euro, Chinese yuan renminbi (“CNY”), British pound sterling, Taiwanese dollar, Mexican peso, Japanese yen and Canadian dollar. With the exception of its operating subsidiaries in China, which use the U.S. dollar as their functional currency, Logitech’s international operations generally use the local currency of the country as their functional currency. Accordingly, unrealized 58 foreign currency gains or losses resulting from the translation of net assets or liabilities denominated in foreign currencies to the U.S. dollar are accumulated in the cumulative translation adjustment component of other comprehensive income in shareholders’ equity. The table below provides information about the Company’s underlying transactions that are sensitive to foreign exchange rate changes, primarily assets and liabilities denominated in currencies other than the functional currency, where the net exposure is greater than $0.5 million at March 31, 2007. The table below represents the U.S. dollar impact on earnings of a 10% appreciation and a 10% depreciation of the functional currency as compared with the transaction currency (in thousands): Functional Currency Transaction Currency Chinese yuan renminbi . . . . . . U.S. dollar . . . . . . . . . U.S. dollar . . . . . . . . . Swedish kroner . . . . . . . . . . . . U.S. dollar . . . . . . . . . Mexican peso . . . . . . . . . . . . . Japanese yen . . . . . . . . . . . . . . U.S. dollar . . . . . . . . . Euro . . . . . . . . . . . . . . . . . . . . U.S. dollar . . . . . . . . . Taiwanese dollar U.S. dollar . . . . . . . . . . . . . . . . . . . British pound sterling . . . . . . . Euro . . . . . . . . . . . . . . Russian rouble . . . . . . . . . . . . Euro . . . . . . . . . . . . . . Norwegian Kroner . . . . . . . . . Euro . . . . . . . . . . . . . . Net Exposed Long (Short) Currency Position FX Gain (Loss) From 10% Appreciation of Functional Currency FX Gain (Loss) From 10% Depreciation of Functional Currency $ 77,302 10,283 4,432 840 (575) (10,113) 20,132 2,726 (632) $104,395 CG $(7,027) (935) (403) (76) 52 919 (1,830) (248) 57 $(9,491) $ 8,589 1,143 492 93 (64) (1,124) 2,237 303 (70) $11,599 Long currency positions represent net assets being held in the transaction currency while short currency positions represent net liabilities being held in the transaction currency. The Company’s principal manufacturing operations are located in China, with much of its component and raw material costs transacted in CNY. However, the functional currency of its Chinese operating subsidiary is the U.S. dollar as its sales and trade receivables are transacted in U.S. dollars. To hedge against any potential significant appreciation of the CNY, the Company transferred a portion of its cash investments to CNY accounts. At March 31, 2007, net assets held in CNY totaled $77.3 million. The Company continues to evaluate the level of net assets held in CNY relative to component and raw material purchases and interest rates on cash equivalents. From time to time, certain subsidiaries enter into forward exchange contracts to hedge inventory purchase exposures denominated in U.S. dollars. The amount of the forward exchange contracts is based on forecasts of inventory purchases. These forward exchange contracts are denominated in the same currency as the underlying transactions. Logitech does not use derivative financial instruments for trading or speculative purposes. As of March 31, 2007, the notional amount of forward foreign exchange contracts outstanding for forecasted inventory exposures was $38.5 million. These forward contracts generally mature within three months. Deferred realized gains totaled $0.3 million at March 31, 2007 and are expected to be reclassified to cost of goods sold when the related inventory is sold. The Company also enters into foreign exchange forward contracts to reduce the short-term effects of foreign currency fluctuations on certain foreign currency receivables or payables. The foreign exchange forward contracts are entered into on a monthly basis and generally mature within one to three months. Further, the Company may enter into foreign exchange swap contracts to extend the terms of its foreign exchange forward contracts. The notional amounts of foreign exchange forward contracts outstanding at March 31, 2007 were $9.0 million. The notional amounts of foreign exchange swap contracts outstanding at March 31, 2007 were $11.5 million. Unrealized net losses on the contracts were immaterial at March 31, 2007. 59 If the U.S. dollar had appreciated by 10% compared with the hedged foreign currency, an unrealized gain of $4.1 million in our forward foreign exchange contract portfolio would have occurred. If the U.S. dollar had depreciated by 10% compared with the hedged foreign currency, a $3.7 million unrealized loss in our forward foreign exchange contract portfolio would have occurred. Interest Rates Changes in interest rates could impact the Company’s anticipated interest income on its cash equivalents and short-term investments and interest expense on variable rate short-term debt. The Company prepared sensitivity analyses of its interest rate exposures to assess the impact of hypothetical changes in interest rates. Based on the results of these analyses, a 100 basis point decrease or increase in interest rates from the March 31, 2007 and March 31, 2006 period end rates would not have a material effect on the Company’s results of operations or cash flows. ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES Not applicable. 60 CG ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES None. PART II ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS On June 30, 2005, a two-for-one stock split was effected. On July 14, 2006, a two-for-one stock split was effected. ITEM 15. CONTROLS AND PROCEDURES (a) Disclosure Controls and Procedures Logitech’s Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this Form 20-F, have concluded that, as of such date, our disclosure controls and procedures are effective. Disclosure controls are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed under the Exchange Act, such as this Form 20-F, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls are also designed to reasonably assure that this information is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosure. (b) Management’s Report on Internal Control over Financial Reporting Logitech’s management, with oversight by the Board of Directors, is responsible for establishing and maintaining adequate internal control over financial reporting. Logitech’s internal control system was designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation and fair presentation of financial statements in accordance with generally accepted accounting principles in the United States. Logitech’s management assessed the effectiveness of our internal control over financial reporting as of March 31, 2007. In making this assessment, management used the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, our management concluded that our internal control over financial reporting was effective as of March 31, 2007. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective may not prevent or detect misstatements and can provide only reasonable assurance with respect to financial statement preparation and presentation. 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. (c) Attestation Report of the Registered Public Accounting Firm Our management’s assessment of the effectiveness of our internal control over financial reporting as of March 31, 2007 has been audited by PricewaterhouseCoopers SA, Switzerland, an independent registered public accounting firm, as stated in their report, which is included under Item 18 “Financial Statements” on page F-2. 61 (d) Changes in Internal Control over Financial Reporting During the second quarter of fiscal 2007, the Company completed the implementation of an upgrade to its enterprise resource planning (“ERP”) software. Implementation of an ERP software upgrade is a material change in the Company’s internal control over financial reporting. Pre-implementation testing and post-implementation reviews were conducted by management to ensure that internal controls surrounding the system implementation process, the applications, and closing process were properly designed and tested for effectiveness to prevent material financial statement errors. There have been no other changes in the Company’s internal control over that have materially affected, or are financial reporting during the period covered by this annual report reasonably likely to materially affect, the Company’s internal control over financial reporting. ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT The Audit Committee of the Board of Directors consists of three non-employee directors, Mr. Gary Bengier, Mr. Kee-Lock Chua, and Ms. Monika Ribar, each of whom meets the independence requirements of the Nasdaq Global Select Market listing standards and the rules and regulations of the U.S. Securities and Exchange Commission. The Board affirmatively determined that Mr. Bengier and Ms. Ribar are audit committee financial experts. Refer also to the information in Exhibit 15.1 under Section 3.5 “The Functioning of the Board of Directors – Audit Committee.” ITEM 16B. CODE OF ETHICS The Company’s code of ethics policy entitled, “Business Ethics and Conflict of Interest Policy of Logitech International S.A.,” covers members of the Company’s board of directors and its executive officers (including the principal executive officer, principal financial officer and controller) as well as all other employees. The code of ethics addresses, among other things, the following items: • Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; • Full, fair, accurate, timely, and understandable disclosure in reports and documents that we file with, or submit to, the Commission and in other public communications made by us; • Compliance with applicable governmental laws, rules and regulations; • The prompt internal reporting to an appropriate person or persons identified in the code of violations of any of the provisions described above; and • Accountability for adherence to the code. 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 Web site within five business days following the date of the amendment or waiver and will also be disclosed either on a Form 6-K or the Company’s next Form 20-F filing. During fiscal year 2007, no waivers or amendments were made to the code of ethics for any Director or Executive Officer. Logitech’s code of ethics is available on the Company’s Web site at www.logitech.com, and for no charge, a copy of the Company’s code of ethics can be requested via the following address or phone number: Logitech Investor Relations 6505 Kaiser Drive Fremont, CA 94555 USA Main 510-795-8500 62 ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES Information concerning accountant fees and services appears in Section 8.2 and 8.3 “Audit Fees” and Section 8.4 “Supervisory and Control Instruments” in Exhibit 15.1 to this Form 20-F and is incorporated herein by reference. ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES Not applicable. ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS The following table sets forth certain information related to purchases made by Logitech of its equity securities (in thousands, except share and per share amounts): CG Period April 2006 . . . . . . . . . . . . . . . . . . . . May 2006 . . . . . . . . . . . . . . . . . . . . June 2006 . . . . . . . . . . . . . . . . . . . . July 2006 . . . . . . . . . . . . . . . . . . . . August 2006 . . . . . . . . . . . . . . . . . . September 2006 . . . . . . . . . . . . . . . October 2006 . . . . . . . . . . . . . . . . . November 2006 . . . . . . . . . . . . . . . December 2006 . . . . . . . . . . . . . . . . January 2007 . . . . . . . . . . . . . . . . . . February 2007 . . . . . . . . . . . . . . . . . March 2007 . . . . . . . . . . . . . . . . . . . Total Number of Shares Purchased as Part of Publicly Announced Programs 60,000 500,000 660,000 — 650,000 540,000 150,000 748,900 420,700 150,000 950,000 780,000 Average Price Paid Per Share in CHF CHF 27.67 CHF 25.30 CHF 24.30 — CHF 25.20 CHF 26.46 CHF 31.56 CHF 33.95 CHF 35.32 CHF 35.55 CHF 35.87 CHF 33.36 in USD $21.19 $20.19 $19.95 $ — $20.24 $21.36 $25.16 $27.06 $29.19 $29.14 $28.60 $26.94 $24.62 Approximate Dollar Value of Shares that May Yet Be Purchased Under the Programs $ 59,114 49,021 35,856 35,856 22,701 11,167 7,393 238,224 225,945 221,574 194,407 173,390 Total . . . . . . . . . . . . . . . . . . . . 5,609,600 CHF 30.57 In fiscal year 2007, the Company repurchased shares pursuant to the Company’s buyback program announced in June 2005, authorizing the purchase of up to CHF 300 million of shares (approximately $235 million based on exchange rates at the date of announcement). The Company completed this share buyback program in November 2006 and initiated purchases under an additional share buyback program announced in May 2006. The Company is authorized to purchase up to $250 million under this program, which is in effect until the 2009 Annual General Meeting. All share repurchases by the Company during fiscal year 2007 were made pursuant to one of the foregoing plans. 63 PART III ITEM 17. FINANCIAL STATEMENTS The Company has responded to Item 18. ITEM 18. FINANCIAL STATEMENTS Reference is made to pages F-1 through F-32 and is incorporated herein by reference. Index to Consolidated Financial Statements Report of the Independent Registered Public Accounting Firm to the General Meeting of Logitech . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International S.A., Apples, Switzerland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Income – Years Ended March 31, 2007, 2006 and 2005 . . . . . . . . . . . . . Consolidated Balance Sheets – March 31, 2007 and 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Cash Flows – Years Ended March 31, 2007, 2006 and 2005 . . . . . . . . . . Consolidated Statements of Changes in Shareholders’ Equity – Years Ended March 31, 2007, 2006 F-1 F-2 F-4 F-5 F-6 and 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7 Notes to Consolidated Financial Statements F-8 Unaudited Quarterly Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-32 Financial Statement Schedules Schedule II – Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1 64 ITEM 19. EXHIBITS Exhibits Exhibit No. Exhibit Form File No. Filing Date Exhibit No. Filed Herewith Incorporated by Reference 1996 Employee Share Purchase Plan (U.S.) S-8 POS 333-100854 02/02/07 S-8 POS 333-100854 02/02/07 Articles of Incorporation of Logitech International S.A. as amended. Organizational Regulations of Logitech International S.A. as amended. 1996 Stock Plan, as amended. Logitech International S.A. 2006 Stock Incentive Plan (including related forms of agreements) 2006 Employee Share Purchase Plan (Non- U.S.) Form of Director and Officer Indemnification Agreement with Logitech International S.A. Form of Director and Officer Indemnification Agreement with Logitech Inc. List of subsidiaries of Logitech International S.A. Consent of Independent Registered Public Accounting Firm Report on Corporate Governance prepared under the rules of the SWX Swiss Exchange. Charter for the Audit Committee of the Board of Directors of Logitech International S.A. (as amended October 12, 2004) Certification by Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002. Certification by Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002. Certification by Chief Executive Officer and Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002.* 1.1 1.2 4.1 4.2 4.3 4.4 4.5 4.6 8.1 12.1 15.1 15.2 31.1 31.2 32.1 * 6-K 0-29174 08/04/06 1.1 6-K 0-29174 11/03/06 15.1 S-8 333-100854 05/27/03 S-8 333-140429 02/02/07 4.2 4.2 4.3 4.4 CG 20-F 0-29174 05/21/03 4.1 20-F 0-29174 05/21/03 4.2 6-K 0-29174 02/04/05 15.1 X X X X X X This exhibit is furnished herewith, but not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or 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. 65 SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf. Logitech International S.A. Guerrino De Luca President and Chief Executive Officer Mark J. Hawkins Chief Financial Officer, and U.S. Representative May 25, 2007 66 LOGITECH INTERNATIONAL S.A. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of the Independent Registered Public Accounting Firm to the General Meeting of Logitech International S.A., Apples, Switzerland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Income – Years Ended March 31, 2007, 2006 and 2005 . . . . . . . . . . . . . . . . . . Consolidated Balance Sheets – March 31, 2007 and 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Cash Flows – Years Ended March 31, 2007, 2006 and 2005 . . . . . . . . . . . . . . . Consolidated Statements of Changes in Shareholders’ Equity – Years Ended March 31, 2007, 2006 and 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page F-2 F-4 F-5 F-6 F-7 F-8 CG Unaudited Quarterly Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-32 F-1 REPORT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM TO THE GENERAL MEETING OF LOGITECH INTERNATIONAL S.A., APPLES, SWITZERLAND To the Shareholders of Logitech International S.A.: We have completed an integrated audit of Logitech International S.A.’s March 31, 2007 consolidated financial statements and of its internal control over financial reporting as of March 31, 2007 and audits of its March 31, 2006 and March 31, 2005 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States) and with Swiss Auditing Standards. Our opinions, based on our audits, are presented below. Consolidated financial statements and financial statement schedule In our opinion, the consolidated financial statements listed in the index appearing on F-1 present fairly, in all material respects, the financial position of Logitech International S.A. and its subsidiaries at March 31, 2007 and March 31, 2006, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2007 in conformity with accounting principles generally accepted in the United States of America and comply with Swiss law. In addition, in our opinion, the financial statement schedule on S-1 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s Board of Directors and management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States) and with Swiss Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. We recommend that the consolidated financial statements submitted to you be approved. As discussed in Note 4 and Note 13 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment as of April 1, 2006 and Statement of Financial Accounting Standards No. 158, Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans as of March 31, 2007. Internal control over financial reporting Also, in our opinion, management’s assessment, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 15(b) in this Form 20-F, that the Company maintained effective internal control over financial reporting as of March 31, 2007 based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2007, based on criteria established in Internal Control – Integrated Framework issued by the COSO. The Company’s management, with the oversight of the Board of Directors, is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our F-2 audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions. 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 (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance 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 (iii) 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. CG 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. PricewaterhouseCoopers SA F. Roth Auditor in charge Lausanne, May 24, 2007 F. Rast F-3 LOGITECH INTERNATIONAL S.A. CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) Year ended March 31, 2007 2006 2005 Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,066,569 1,357,044 $1,796,715 1,222,605 $1,482,626 979,039 Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating expenses: Marketing and selling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other income, net Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 709,525 574,110 503,587 272,264 108,256 98,143 478,663 230,862 8,733 15,962 255,557 25,709 221,504 87,953 65,742 375,199 198,911 3,591 7,352 209,854 28,749 200,350 73,900 57,663 331,913 171,674 141 3,791 175,606 26,340 Net income (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 229,848 $ 181,105 $ 149,266 Net income per share: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 1.26 1.20 $ $ 1.00 .92 $ $ .84 .77 Shares used to compute net income per share: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182,635 190,991 181,361 198,769 177,008 198,250 (1) Net income for fiscal year 2007 includes share-based compensation expense under SFAS 123R of $14.9 million, net of tax benefit, related to employee stock options and employee stock purchases. The consolidated statements of income for fiscal years 2006 and 2005 do not include the effect of share-based compensation expense, because the Company implemented SFAS 123R using the modified prospective transition method effective April 1, 2006. See Notes 2 and 4 to the consolidated financial statements for additional information. The accompanying notes are an integral part of these consolidated financial statements. F-4 LOGITECH INTERNATIONAL S.A. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) March 31, 2007 2006 Current assets: ASSETS Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 196,197 214,625 310,377 217,964 68,257 $ 245,014 — 289,849 196,864 34,479 Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goodwill Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,007,420 14 87,054 179,991 18,920 34,064 766,206 36,414 74,810 135,396 11,175 33,063 CG Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,327,463 $1,057,064 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,856 218,129 235,0 80 5 465,06 — 17,874 482,93 9 $ 14,071 181,290 162,922 358,283 4 13,601 371,888 Commitments and contingencies Shareholders’ equity: Shares, par value CHF 0.25 – 231,606,620 authorized, 71,561,860 conditionally authorized, 191,606,620 issued at March 31, 2007 and 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additional paid-in capital Less shares in treasury, at cost, 9,363,639 at March 31, 2007 and 8,955,226 at 33,370 72,779 33,370 100,339 March 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (217,073) 995,606 (40,158) (186,080) 765,758 (28,211) Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 844,524 685,176 Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 $1,327,46 $1,057,064 The accompanying notes are an integral part of these consolidated financial statements. F-5 LOGITECH INTERNATIONAL S.A. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year ended March 31, 2006 2007 2005 Cash flows from operating activities: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-cash items included in net income: $ 229,848 $ 181,105 $ 149,266 Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . Share-based compensation expense related to options and purchase rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Write-off of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on sale of investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on cash surrender value of life insurance policies . . . . . . . . . . . . . In-process research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss on disposal of fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Excess tax benefits from share-based compensation . . . . . . . . . . . . . . . Deferred income taxes and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Changes in assets and liabilities, net of acquisitions: Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,239 4,876 29,880 4,641 26,041 6,320 19,464 — (8,980) (1,006) 1,000 516 (13,076) (9,691) (9,917) (11,478) (8,637) 33,890 41,777 — 1,168 (560) (1,523) — 1,169 — (4,870) (66,651) (25,425) (5,416) 5,162 33,537 — — — — — 111 — (3,698) (14,140) (35,276) 8,675 30,373 46,002 Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . 303,825 152,217 213,674 Cash flows from investing activities: Purchases of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . Purchases of short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sales of short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sale of investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Premiums paid on cash surrender value life insurance policies . . . . . . . . . . . Acquisitions and investments, net of cash acquired . . . . . . . . . . . . . . . . . . . . (47,246) (416,475) 201,850 12,874 (537) (20,524) (54,102) — — — (1,464) 860 (40,541) — — — — (30,494) Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . (270,058) (54,706) (71,035) Cash flows from financing activities: . . . . . . . . . . . . . . . . . . . . . . . . . Borrowings (repayments) of short-term debt Repayments of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchases of treasury shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from sale of shares upon exercise of options and purchase rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Excess tax benefits from share-based compensation . . . . . . . . . . . . . . . . . . . (2,181) — (138,095) 5,235 (43) (241,352) (4,073) (475) (134,525) 44,706 13,076 49,206 — 45,985 — Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . (82,494) (186,954) (93,088) Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . . . . (90) (6,820) (3,027) Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . (48,817) 245,014 (96,263) 341,277 46,524 294,753 Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 196,197 $ 245,014 $ 341,277 Supplemental cash flow information: Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 178 $ 10,165 $ $ 1,582 6,456 Non-cash financing activities: Conversion of convertible debt to registered shares . . . . . . . . . . . . . . . . . . . . $ — $ 138,674 $ $ $ 1,560 6,588 — The accompanying notes are an integral part of these consolidated financial statements. F-6 LOGITECH INTERNATIONAL S.A. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (In thousands) Registered shares Additional Shares Amount paid-in capital Treasury shares Shares Amount Retained earnings Accumulated other comprehensive loss March 31, 2004 . . . . . . . . . . . . . . . . . . . . . . . 191,606 $33,370 $132,797 — Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . — . . . . . . . . Cumulative translation adjustment — Deferred realized hedging gains . . . . . . . . . . — — — — — — 11,606 — — — $(102,397) $435,387 149,266 — — — — — $(42,077) — (2,522) 708 Total comprehensive income . . . . . . . . . Tax benefit from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchase of treasury shares . . . . . . . . . . . . . . Sale of shares upon exercise of options and purchase rights . . . . . . . . . . . . . . . . . . . . . . — — — — — 10,157 — — 11,100 — (134,525) — (17,209) (8,064) 63,194 — — — — — — Total 457,080 149,266 (2,522) 708 147,452 10,157 (134,525) 45,985 CG March 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . 191,606 $33,370 $125,745 14,642 $(173,728) $584,653 $(43,891) $ 526,149 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . Cumulative translation adjustment . . . . . . . . Change in unrealized gain on investment, net of tax of $1,659 . . . . . . . . . . . . . . . . . . . . . Deferred realized hedging loss . . . . . . . . . . . Total comprehensive income . . . . . . . . . . . . . Tax benefit from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchase of treasury shares . . . . . . . . . . . . . . Sale of shares upon exercise of options and purchase rights . . . . . . . . . . . . . . . . . . . . . . Conversion of convertible debt . . . . . . . . . . . — — — — — — — — — — — — — — — — — — — — — — 15,714 — — 12,276 — — — — — (241,352) — (46,716) 5,596 — (7,066) (10,897) 95,922 133,078 181,105 — — — — — — — — (3,314) 19,611 (617) — — — — 181,105 (3,314) 19,611 (617) 196,785 15,714 (241,352) 49,206 138,674 March 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . 191,606 $33,370 $100,339 8,955 $(186,080) $765,758 $(28,211) $ 685,176 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cumulative translation adjustment Change in unrealized gain on investment, net of tax of $601 . . . . . . . . . . . . . . . . . . . . . . . Reclassification adjustment for net realized gains on investment, net of tax of $1,058 . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred realized hedging loss . . . . . . . . . . . Total comprehensive income . . . . . . . . . Adoption of SFAS 158, net of tax of $859 . . Tax benefit from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchase of treasury shares . . . . . . . . . . . . . . Sale of shares upon exercise of options and purchase rights . . . . . . . . . . . . . . . . . . . . . . Share-based compensation expense related to employee stock options and stock purchase plan . . . . . . . . . . . . . . . . . . . . . . . — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 14,668 — — 5,610 — — — — — — — (138,095) — (62,396) (5,201) 107,102 — 20,168 — — 229,848 — — 9,695 229,848 9,695 — — — — — — — — (10,211) (10,211) (9,400) 697 (9,400) 697 220,629 (2,728) (2,728) — — — — 14,668 (138,095) 44,706 20,168 March 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . 191,606 $33,370 $ 72,779 9,364 $(217,073) $995,606 $(40,158) $ 844,524 The accompanying notes are an integral part of these consolidated financial statements. F-7 LOGITECH INTERNATIONAL S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 — The Company Logitech International S.A. is a world leader in personal peripherals for personal computers and other digital platforms, developing and marketing innovative products in PC navigation, Internet communications, digital interactive gaming and wireless devices. For the PC, the Company’s music, home-entertainment control, products include mice, trackballs, keyboards, gaming controllers, multimedia speakers, headsets, webcams and 3D control devices. For digital music devices, the Company’s products include speakers and headphones. For gaming consoles, the Company offers a range of controllers and other accessories. In addition, Logitech offers wireless music solutions for the home and advanced remote controls for home entertainment systems. The Company generates revenues from sales of its products to a worldwide network of retail distributors and resellers and to original equipment manufacturers (“OEMs”). The Company’s sales to its retail channels comprise the large majority of its revenues. Logitech was founded in Switzerland in 1981, and in 1988 listed its registered shares in an initial public offering in Switzerland. In 1997, the Company sold shares in a U.S. initial public offering in the form of American Depositary Shares (“ADSs”) and listed the ADSs on the Nasdaq Global Select Market. In October 2006, the Company terminated its ADS program, exchanged its Nasdaq-listed ADSs for Logitech shares, and continued its Nasdaq listing, as a result of which Logitech shares trade on both the Nasdaq Global Select Market and the SWX Swiss Exchange. The trading symbol for Logitech shares is LOGI on Nasdaq and LOGN on SWX. The exchange of the Nasdaq-listed ADSs for Logitech shares was a one-for-one exchange and had no impact on financial statement or per share amounts. The Company’s registered office is located in Apples, Switzerland. The Company has manufacturing facilities in Asia and offices in major cities in North America, Europe and Asia Pacific. Note 2 — Summary of Significant Accounting Policies Basis of Presentation The consolidated financial statements include the accounts of Logitech and its subsidiaries. All intercompany balances and transactions have been eliminated. The consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and comply with Swiss law. In the opinion of management, these financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the periods presented. Certain prior year financial statement amounts have been reclassified to conform to the current year presentation with no impact on previously reported net income. Fiscal Year The Company’s fiscal year ends on March 31. Interim quarters are thirteen-week periods, each ending on a Friday. For purposes of presentation, the Company has indicated its quarterly periods as ending on the month end. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect reported amounts of assets, liabilities, net sales and expenses, and the disclosure of contingent assets and liabilities. Although these estimates are based on management’s best knowledge of current events and actions that may impact the Company in the future, actual results could differ from those estimates. F-8 LOGITECH INTERNATIONAL S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Foreign Currencies The functional currency of the Company’s operations is primarily the U.S. dollar. To a lesser extent, certain operations use the Euro, Swiss franc and Japanese yen as their functional currencies. The financial statements of the Company’s subsidiaries whose functional currency is other than the U.S. dollar are translated to U.S. dollars using period-end rates of exchange for assets and liabilities and monthly average rates for revenues and expenses. Cumulative translation gains and losses are included as a component of shareholders’ equity in accumulated other comprehensive loss. Gains and losses arising from transactions denominated in currencies other than a subsidiary’s functional currency are reported in other income, net in the statement of income. Revenue Recognition Revenues are recognized when all of the following criteria are met: CG • • • • evidence of an arrangement exists between the Company and the customer; delivery has occurred and title and risk of loss transfer to the customer; the price of the product is fixed or determinable; and collectibility of the receivable is reasonably assured. Revenues from sales to distributors and authorized resellers are recognized net of estimated product returns and expected payments for cooperative marketing arrangements, customer incentive programs and price protection. Significant management judgments and estimates must be used to determine the cost of these programs in any accounting period. The Company grants limited rights to return product, and return rights vary by customer. Estimates of expected future product returns are recognized as a reduction of revenue at the time of sale, based on analyses of historical trends by customer and by product, distributor and retailer inventory levels, and other factors. Cooperative marketing arrangements include contractual customer marketing and sales incentive programs. Under the customer marketing programs, the Company generally offers customers an allowance for marketing activities equal to a negotiated percentage of sales. Other sales incentive programs include various fixed discount and rebate programs. The costs of cooperative marketing arrangements are recognized as a reduction of the sale price at the time of sale and are estimated based on the negotiated fixed percentage of the customer’s purchases in the period the Company recognizes revenue. Accruals for sales incentive programs are recorded at the time of sale based on negotiated terms, historical experience and inventory levels in the channel. Customer incentive programs include volume and consumer rebates. Volume rebates are related to purchase volumes or sales of specific products by distributors to specified retailers. Consumer rebates are offered from time to time at the Company’s discretion directly to end-users. Contractual volume rebates to distribution or retail customers are recognized as a reduction of the sale price at the time of shipment, and are estimated based on the negotiated terms and the Company’s historical experience. The costs of consumer rebates are recorded at the time the incentive is offered and are estimated based on historical experience and the specific terms and conditions of the incentive. The Company has contractual agreements with certain of its customers that contain terms allowing price protection credits to be issued for customers’ on-hand or in transit new inventory if the Company, in its sole discretion, lowers the price of the product. The estimated costs of price protection programs are recorded as a reduction of revenue at the time of sale based on planned price reductions, units held by qualifying customers and historical trends by customer and by product. F-9 LOGITECH INTERNATIONAL S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The Company regularly evaluates the adequacy of its accruals for product returns, cooperative marketing arrangements, customer incentive programs and price protection. When the variables used to estimate these costs change, or if actual costs differ significantly from the estimates, the Company recognizes adjustments to recorded costs in the period of change. If, at any future time, the Company becomes unable to reasonably estimate these costs, recognition of revenue may be deferred until products are sold to end-users. Research and Development Costs Costs related to research, design and development of products are charged to research and development expense as they are incurred. Advertising Costs Advertising costs are expensed as incurred and amounted to $169.8 million, $144.2 million and $125.1 million in fiscal years 2007, 2006 and 2005. Advertising costs are recorded as either a marketing and selling expense or a deduction from revenue. Advertising costs reimbursed by the Company to a customer must have an identifiable benefit and an estimable fair value in order to be classified as an operating expense. If these criteria are not met, the cost is classified as a reduction of revenue. Cash Equivalents The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. Concentration of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. The Company maintains cash and cash equivalents with various financial institutions to limit exposure with any one financial institution. The Company sells to large OEMs, distributors and key retailers and, as a result, maintains individually significant receivable balances with such customers. As of March 31, 2007, one customer represented 16% of total accounts receivable. As of March 31, 2006, two customers represented 16% and 12% of total accounts receivable. Typical payment terms require customers to pay for product sales generally within 30 to 60 days; however terms may vary by customer type, by country and by selling season. Extended payment terms are sometimes offered to a limited number of customers during the second and third fiscal quarters. The Company does not modify payment terms on existing receivables. The Company’s OEM customers tend to be well-capitalized, multi-national companies, while distributors and key retailers may be less well-capitalized. The Company manages its accounts receivable credit risk through ongoing credit evaluation of its customers’ financial condition. The Company generally does not require collateral from its customers. Allowance for Doubtful Accounts Allowances for doubtful accounts are maintained for estimated losses resulting from the inability of the Company’s customers to make required payments. The allowances are based on the Company’s regular assessment of the credit worthiness and financial condition of specific customers, as well as its historical experience with bad debts and customer deductions, receivables aging, current economic trends, geographic or country-specific risks and the financial condition of its distribution channels. Bad debt expense for fiscal years 2007, 2006 and 2005 amounted to $527,000, $9,000 and $55,000. F-10 LOGITECH INTERNATIONAL S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Inventories Inventories are stated at the lower of cost or market. Cost is computed on a first-in, first-out basis. The Company records write-downs of inventories which are obsolete or in excess of anticipated demand or market value based on a consideration of product technology trends, historical sales, product life cycle stage, development plans, component cost trends and assumptions about future demand and market conditions. Investments The Company invests in U.S. Government Guaranteed Student Loan Issues, which are auction rate securities collateralized by student loans and guaranteed by the United States Department of Education. Although the student loans securitizing the auction rate securities have maturity dates greater than 15 years, these investments are considered highly liquid and typically reset every 28 days. These securities are classified as available-for-sale as of March 31, 2007 and are reported at fair value with the unrealized gains and losses included as a separate component of shareholders’ equity. As of March 31, 2007, the Company had not recognized any unrealized gains or losses for its auction rate securities. CG The Company also invests in companies in which Logitech owns less than a 20% interest. In accordance with Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” investments with a quoted market value are classified as available-for-sale. Such investments are reported at fair value with the unrealized gains and losses included as a separate component of shareholders’ equity. Unrealized losses are charged against income when a decline in fair value is determined to be other than temporary. Realized gains and losses upon the sale or disposition of such investments are based on the average cost of the specific investments sold. The cost method is used for all other investments which are adjusted for any decrease in value deemed to be other than temporary in nature. Property, Plant and Equipment Property, plant and equipment are stated at cost. Additions and improvements are capitalized, and maintenance and repairs are expensed as incurred. The Company capitalizes the cost of software developed for internal use in connection with major projects. Costs incurred during the feasibility stage are expensed, whereas costs incurred during the application development stage are capitalized. With the exception of tooling, depreciation is provided using the straight-line method. Plant and buildings are depreciated over estimated useful lives from ten to twenty-five years, equipment over useful lives from three to five years, software development over useful lives of three to five years and leasehold improvements over the life of the lease, not to exceed five years. Tooling is depreciated over the forecasted life of the tool, not to exceed one year from the time it is placed into production. Depreciation for tooling is calculated based on the forecasted production volume and adjusted quarterly based on actual production. When property and equipment is retired or otherwise disposed of, the cost and accumulated depreciation are relieved from the accounts and the net gain or loss is included in the determination of net income. Goodwill and Other Intangible Assets The Company’s intangible assets principally include goodwill, acquired technology, trademarks, customer contracts and customer relationships and other. Intangible assets with finite lives, which include acquired technology, trademarks, customer contracts and customer relationships and other, are recorded at cost and amortized using the straight-line method over their useful lives ranging from one month to ten years. Intangible assets with indefinite lives, which include goodwill, are recorded at cost and evaluated at least annually for impairment. F-11 LOGITECH INTERNATIONAL S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Impairment of Long-Lived Assets The Company reviews long-lived assets, such as investments, property and equipment, and intangible assets, for impairment whenever events indicate that the carrying amounts might not be recoverable. Recoverability of investments, property and equipment, and other intangible assets is measured by comparing the projected undiscounted net cash flows associated with those assets to their carrying values. If an asset is considered impaired, it is written down to fair value, which is determined based on the asset’s projected discounted cash flows or appraised value, depending on the nature of the asset. Goodwill is evaluated for impairment at least annually. Income Taxes The Company provides for income taxes using the liability method, which requires that deferred tax assets and liabilities be recognized for the expected future tax consequences of temporary differences resulting from differing treatment of items for tax and accounting purposes. In estimating future tax consequences, expected future events are taken into consideration, with the exception of potential tax law or tax rate changes. Fair Value of Financial Instruments The carrying value of certain of the Company’s financial instruments, including cash, cash equivalents, short-term investments, accounts receivable, accounts payable, short-term debt and current maturities of long- term debt approximates fair value due to their short maturities. The estimated fair value of publicly traded financial equity instruments are determined by quoted market prices. Net Income per Share Basic net income per share is computed by dividing net income by the weighted average outstanding shares. Diluted net income per share is computed using the weighted average outstanding shares and dilutive share equivalents. Dilutive share equivalents consist of employee stock options and convertible debt. The dilutive effect of in-the-money stock options is calculated based on the average share price for each fiscal period using the treasury stock method, which assumes that the amount used to repurchase shares includes the amount the employee must pay for exercising stock options, the amount of compensation cost not yet recognized for future service, and the amount of tax benefits that would be recorded in additional paid-in capital when the award becomes deductible. The dilutive effect of convertible debt is based upon conversion, computed using the if-converted method. Share-Based Compensation Expense The Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payments” (“SFAS 123R”), effective April 1, 2006, using the modified prospective transition method. Therefore, results for periods prior to April 1, 2006 have not been restated to include share-based compensation expense calculated in accordance with SFAS 123R. The Company recognized share-based compensation expense in those periods in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). In March 2005, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 107 (“SAB 107”) regarding the SEC’s interpretation of SFAS 123R and the valuation of share-based payments for public companies. Logitech has applied the provisions of SAB 107 in its adoption of SFAS 123R. F-12 LOGITECH INTERNATIONAL S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Share-based compensation expense for fiscal 2007 includes compensation expense, reduced for estimated forfeitures, for share-based compensation awards granted prior to but not yet vested as of April 1, 2006, based on the grant-date fair value estimated using the Black-Scholes-Merton option-pricing valuation model in accordance with the original provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock- Based Compensation” (“SFAS 123”). These compensation costs are recognized in accordance with Financial Accounting Standards Board Interpretation No. 28, “Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans”, on a straight-line basis over the service period for each separately vesting portion of the award (multiple-option approach). Share-based compensation expense for fiscal 2007 also includes compensation expense, reduced for estimated forfeitures, for awards granted after April 1, 2006 based on the grant-date fair value estimated using the Black-Scholes-Merton option-pricing valuation model. These compensation costs are recognized on a straight-line basis over the service period of the award, which is generally the option vesting term of four years (single-option approach). CG Prior to adopting SFAS 123R, tax benefits resulting from the exercise of stock options were presented as operating cash flows in the consolidated statement of cash flows. SFAS 123R requires cash flows resulting from excess tax benefits to be classified as cash flows from financing activities. Excess tax benefits are realized tax benefits from tax deductions for exercised options in excess of the deferred tax asset attributable to share-based compensation costs for such options. The Company will recognize a benefit from share-based compensation in paid-in capital only if an incremental tax benefit is realized after all other available tax attributes have been utilized. For income tax footnote disclosure, the Company has elected to offset deferred tax assets against the valuation allowance related to the net operating loss and tax credit carryforwards from accumulated tax benefits determined under APB 25. The Company will recognize these tax benefits in paid-in capital in accordance with Footnote 82 of SFAS 123R when the deduction reduces cash taxes payable. In addition, the Company has elected to account for the indirect benefits of share-based compensation on the research tax credit through the income statement (continuing operations) rather than through paid-in capital. The adoption of SFAS 123R had a material impact on earnings per share and the consolidated financial statements for fiscal year 2007, and is expected to continue to materially impact the Company’s financial statements in the foreseeable future. See Note 4 to the consolidated financial statements for further discussion of share-based compensation. Comprehensive Income Comprehensive income is defined as the total change in shareholders’ equity during the period other than from transactions with shareholders. Comprehensive income consists of net income and other comprehensive income, a component of shareholders’ equity. Other comprehensive income is comprised of foreign currency translation adjustments from those entities not using the U.S. dollar as their functional currency, unrealized gains and losses on marketable equity securities, net deferred gains and losses and prior service costs for defined benefit pension plans, and net deferred gains and losses on hedging activity. Recent Accounting Pronouncements In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 defines the threshold for recognizing the benefits of tax return positions in the financial statements as “more- F-13 LOGITECH INTERNATIONAL S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) likely-than-not” to be sustained by the taxing authority and provides guidance on the derecognition, measurement and classification of income tax uncertainties, along with any related interest and penalties. FIN 48 also includes guidance concerning accounting for income tax uncertainties in interim periods and increases the level of disclosures associated with any recorded income tax uncertainties. FIN 48 is effective for fiscal years beginning after December 15, 2006 and is required to be adopted by the Company in the first quarter of fiscal year 2008. The cumulative effects, if any, of applying FIN 48 will be recorded as an adjustment to retained earnings as of the beginning of the period of adoption. The Company is evaluating the financial statement and disclosure impact of adopting FIN 48. In May 2007, the FASB issued FASB Staff Position FIN 48-1, “Definition of ‘Settlement’ in FASB Interpretation No. 48” (“FSP FIN 48-1”). FSP FIN 48-1 provides guidance on how a company should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. FSP FIN 48-1 is effective upon initial adoption of FIN 48, which the Company will adopt in the first quarter of fiscal year 2008. In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 affects other accounting pronouncements that require or permit fair value measurements where the FASB has previously concluded that fair value is the relevant measurement attribute. SFAS 157 does not require any new fair value measurements, but may change current practice in some instances. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The Company will adopt SFAS 157 in the first quarter of fiscal year 2009, and is evaluating the financial statement and disclosure impact. In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — including an amendment of FAS 115” (“SFAS 159”). SFAS 159 allows companies to choose, at specified election dates, to measure eligible financial assets and liabilities at fair value that are not otherwise required to be measured at fair value. Unrealized gains and losses shall be reported in earnings at each subsequent reporting date on items for which the fair value option has been elected. SFAS 159 also establishes presentation and disclosure requirements. SFAS 159 is effective for fiscal years beginning after November 15, 2007 and is required to be adopted by the Company in the first quarter of fiscal year 2009. SFAS 159 will be applied prospectively. The Company is currently determining whether fair value accounting is appropriate for any of its eligible items and cannot estimate the financial statement and disclosure impact which SFAS 159 would have, if any. Note 3 — Net Income per Share The computations of basic and diluted net income per share for the Company were as follows (in thousands except per share amounts): Year ended March 31, 2007 2006 2005 Net income – basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Convertible debt interest expense, net of income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . $229,848 — $181,105 1,520 $149,266 2,877 Net income – diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $229,848 $182,625 $152,143 Weighted average shares – basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effect of dilutive stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effect of dilutive convertible debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182,635 8,356 — 181,361 11,380 6,028 177,008 10,344 10,898 Weighted average shares – diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190,991 198,769 198,250 Net income per share – basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income per share – diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 1.26 1.20 $ $ 1.00 0.92 $ $ 0.84 0.77 F-14 LOGITECH INTERNATIONAL S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) During fiscal years 2007, 2006 and 2005, 3,327,825, 1,615,556 and 4,039,772 share equivalents attributable to outstanding stock options were excluded from the calculation of diluted net income per share because the exercise prices of these options were greater than the average market price of the Company’s shares, and therefore their inclusion would have been anti-dilutive. Statement of Financial Accounting Standards No. 128, “Earnings per Share,” requires that employee equity share options, non-vested shares and similar equity instruments granted by the Company are treated as potential shares in computing diluted earnings per share. Diluted shares outstanding include the dilutive effect of in-the-money options which is calculated based on the average share price for each fiscal period using the treasury stock method. Under the treasury stock method, the amount that the employee must pay for exercising stock options, the amount of compensation cost for future service that the Company has not yet recognized, and the amount of tax benefits that would be recorded in additional paid-in capital when the award becomes deductible are assumed to be used to repurchase shares. During the fiscal year ended March 31, 2007, the number of in-the-money employee stock options treated as potential shares in computing diluted earnings per share was approximately 18,035,229 shares or 9.9% of the basic weighted average shares outstanding based on the Company’s average share price of $23.44. CG The following table illustrates the dilution effect of stock options granted and exercised: Year ended March 31 2007 2006 2005 Shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182,635,345 181,361,200 177,007,784 Stock options granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock options canceled, forfeited, or expired . . . . . . . . . . . . . . . . . . . 2,555,200 (688,242) 3,451,470 (1,264,618) 5,186,920 (631,276) Net options granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,866,958 2,186,852 4,555,644 Grant dilution(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.0% 1.2% 2.6% Stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,599,180 6,476,232 7,314,712 Exercise dilution(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5% 3.6% 4.1% (1) The percentage of grant dilution is computed based on net options granted as a percentage of shares outstanding. (2) The percentage of exercise dilution is computed based on options exercised as a percentage of shares outstanding. Note 4 — Share-Based Compensation Plan Descriptions As of March 31, 2007, the Company offers the 2006 Employee Share Purchase Plan (Non-U.S.), the 1996 Employee Share Purchase Plan (U.S.), and the 2006 Stock Incentive Plan, which replaces the 1996 Stock Plan. Shares issued to employees as a result of purchases or exercises under these plans are generally issued from shares held in treasury. Effective June 15, 2006, Logitech’s Board of Directors approved the splitting of the Company’s Employee Share Purchase Plan into two separate plans, one for employees in the United States and one for employees outside the United States. As a result, the Board adopted the 2006 Employee Share Purchase Plan (Non-U.S.) (“2006 ESPP”) and renamed the 1996 Employee Share Purchase Plan as the 1996 Employee Share Purchase Plan (U.S.) (“1996 ESPP”). Under both plans, eligible employees may purchase shares at the lower of 85% of the fair market value at the beginning or the end of each six-month offering period. Subject to continued participation in F-15 LOGITECH INTERNATIONAL S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) these plans, purchase agreements are automatically executed at the end of each offering period. A total of 12,000,000 shares have been reserved for issuance under both the 1996 and 2006 ESPP plans. As of March 31, 2007, a total of 1,479,217 shares were available for issuance under these plans. On June 16, 2006, Logitech’s shareholders approved adoption of the 2006 Stock Incentive Plan (the “2006 Plan”) with an expiration date of June 16, 2016. The Plan replaces the 1996 Stock Plan (“1996 Plan”). The 2006 Plan provides for the grant to eligible employees and non-employee directors of stock options, stock appreciation rights, restricted stock and restricted stock units, which are bookkeeping entries reflecting the equivalent of shares. Stock options granted under the 2006 Plan generally will vest over four years, will have terms not exceeding ten years and will be issued at exercise prices not less than the fair market value on the date of grant. Awards under the 2006 Plan may be conditioned on continued employment, the passage of time or the satisfaction of performance vesting criteria. An aggregate of 14,000,000 shares is reserved for issuance under the 2006 Plan. As of March 31, 2007, a total of 12,006,900 shares were available for issuance under this plan. Under the 1996 Plan, the Company granted options for shares. Options issued under the 1996 Plan generally vest over four years and remain outstanding for periods not to exceed ten years. Options were granted at exercise prices of at least 100% of the fair market value of the shares on the date of grant. The Company made no grants of restricted shares, stock appreciation rights or stock units under the 1996 Plan. No further awards will be granted under the 1996 Plan. Under the 1988 Stock Option Plan, options to purchase shares were granted to employees and consultants at exercise prices ranging from zero to amounts in excess of the fair market value of the shares on the date of grant. The terms and conditions with respect to options granted were determined by the Board of Directors who administered this plan. Options generally vested over four years and remained outstanding for periods not exceeding ten years. Further grants may not be made under this plan and as of March 31, 2007, there were no options outstanding under this plan. Impact of SFAS 123R Adoption Effective April 1, 2006, the Company adopted SFAS 123R using the modified prospective method, which requires the measurement and recognition of compensation expense based on estimated fair values for all share-based payment awards made to employees and directors, including stock options and share purchases under the 2006 ESPP and 1996 ESPP. The following table summarizes the share-based compensation expense and related tax benefit recognized in accordance with SFAS 123R for fiscal year 2007 (in thousands). In accordance with APB 25 and related previous accounting standards, no share-based compensation expense was recognized for fiscal years 2006 and 2005. Year Ended March 31, 2007 Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,077 Share – based compensation expense included in gross profit Operating expenses: . . . . . . . . . . . . . . . . . . . . Marketing and selling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Share-based compensation expense included in operating expenses . . . . . . . . . . . . . . . Total share-based compensation expense related to employee stock options and employee stock purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,077 7,167 3,151 7,069 17,387 19,464 4,526 Share-based compensation expense related to employee stock options and employee stock purchases, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,938 F-16 LOGITECH INTERNATIONAL S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) As a result of adopting SFAS 123R, basic earnings per share for fiscal year 2007 was $0.08 per share lower and diluted earnings per share for fiscal year 2007 was $0.07 per share lower. For fiscal year 2007, $0.7 million of share based compensation was capitalized to inventory. For fiscal years 2006 and 2005, no share-based compensation cost was capitalized to inventory. As of March 31, 2007, total compensation cost related to non-vested stock options not yet recognized was $29.2 million, which is expected to be recognized over the next 36 months on a weighted-average basis. Pro Forma Information Prior to the adoption of SFAS 123R, the Company provided the disclosures required under SFAS 123, as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosures.” No employee share-based compensation expense was reflected in the results of operations for fiscal years 2006 and 2005 for employee stock option awards as all options were granted with an exercise price equal to the market value of the underlying common stock on the date of grant. The employee stock purchases were deemed non-compensatory under the provisions of APB 25. CG If the Company had used SFAS 123 to account for share-based compensation expense for fiscal years 2006 and 2005, net income and net income per share would have been as follows (in thousands except per-share amounts): Year ended March 31, 2006 2005 Net income: As reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total share-based compensation expense using the fair value method . . . . . . . . . . . . . Tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $181,105 (19,896) 5,014 $149,266 (24,507) 5,998 Pro forma net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $166,223 $130,757 Basic net income per share: As reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pro forma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted net income per share: As reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pro forma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ $ $ 1.00 .92 .92 .84 $ $ $ $ .84 .74 .77 .67 Option Valuation The fair value of employee stock options granted and shares purchased under the Company’s employee purchase plans was estimated using the Black-Scholes-Merton option-pricing valuation model applying the following assumptions and values: Dividend yield . . . . . . . . . . . . . . . . Expected life . . . . . . . . . . . . . . . . . . Expected volatility . . . . . . . . . . . . . Risk-free interest rate . . . . . . . . . . . Expected forfeitures . . . . . . . . . . . . Weighted average grant-date fair Year ended March 31, Purchase Plans Stock Option Plans 2007 2006 2005 2007 2006 2005 0% 6 months 33% 4.98% 0% 0% 6 months 26% 3.67% 0% 0% 6 months 33% 2.06% 0% 0% 3.9 years 40% 4.75% 8% 0% 3.7 years 47% 4.16% 0% 0% 3.5 years 58% 3.15% 0% value of options granted . . . . . . . $ 5.87 $ 4.21 $ 3.13 $ 8.11 $ 7.47 $ 5.11 F-17 LOGITECH INTERNATIONAL S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The dividend yield assumption is based on the Company’s history and future expectations of dividend payouts. The Company has not paid dividends since 1996. The expected option life represents the weighted-average period the stock options or purchase offerings are expected to remain outstanding. The expected life is based on historical settlement rates, which the Company believes are most representative of future exercise and post-vesting termination behaviors. Expected share price volatility is based on historical volatility using daily prices over the term of past options or purchase offerings. The Company considers historical share price volatility as most representative of future stock option volatility. The risk-free interest rate assumptions are based upon the implied yield of U.S. Treasury zero-coupon issues appropriate for the term of the Company’s stock options or purchase offerings. SFAS 123R requires the Company to estimate forfeitures at the time of grant and to revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting option forfeitures and records share-based compensation expense only for those awards that are expected to vest. For purposes of calculating pro forma information under SFAS 123 for periods prior to April 1, 2006, forfeitures were recognized as they occurred. Option Activity A summary of activity under the stock option plans is as follows (exercise prices are weighted averages): Year ended March 31, 2007 2006 2005 Number Exercise Price Outstanding, beginning of year . . . . . . . . . Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . Cancelled or expired . . . . . . . . . . . . . . . . . . 21,607,944 2,555,200 (4,599,180) (688,242) Outstanding, end of year . . . . . . . . . . . . . . . 18,875,722 Exercisable, end of year . . . . . . . . . . . . . . . 10,436,970 $10 $22 $ 7 $13 $12 $ 9 Number 25,897,324 3,451,470 (6,476,232) (1,264,618) 21,607,944 10,509,818 Exercise Price $ 8 $19 $ 7 $10 $10 $ 7 Number 28,656,392 5,186,920 (7,314,712) (631,276) 25,897,324 11,122,360 Exercise Price $ 7 $12 $ 5 $ 9 $ 8 $ 6 The total pretax intrinsic value of options exercised during the year ended March 31, 2007 was $72.0 million. The tax benefit realized for the tax deduction from options exercised for fiscal year 2007 was $16.5 million. The following table summarizes significant ranges of outstanding and exercisable options as of March 31, lives are weighted averages, and aggregate intrinsic values are in 2007 (exercise prices and contractual thousands): Options Outstanding Options Exercisable Range of Exercise Price $ 1.00 -$7.49 $ 7.50 -$8.99 $ 9.00 -$11.99 $ 12.00 -$20.49 $ 20.50 -$29.99 Number 3,650,650 4,771,104 4,003,946 3,843,898 2,606,124 $ 1.00 -$29.99 18,875,722 Exercise Price Contractual Life (years) $ 5 $ 8 $11 $18 $22 $12 4.0 5.6 6.5 8.1 9.3 6.5 Aggregate Intrinsic Value $ 82,953 93,172 66,375 38,750 14,979 Number 3,443,650 3,552,524 2,304,682 1,036,156 99,958 $296,229 10,436,970 Exercise Price Contractual Life (years) $ 5 $ 8 $11 $16 $22 $ 9 3.9 5.2 5.9 7.6 8.5 5.2 Aggregate Intrinsic Value $ 78,599 69,458 38,451 11,766 611 $198,885 F-18 LOGITECH INTERNATIONAL S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on options with an exercise price less than the Company’s closing price of $27.83 as of March 31, 2007, which would have been received by the option holders had those option holders exercised their options as of that date. The total number of in-the-money options exercisable as of March 31, 2007 was 10,436,970. Of the total 18,875,722 options outstanding, 10,436,970 are fully vested and 8,438,752 are unvested, of which 6,754,563 are expected to vest, based on an estimated forfeiture rate of 8%. Note 5 — Acquisitions In October 2006, the Company acquired Slim Devices, Inc. (“Slim Devices”), a privately held company specializing in network-based audio systems for digital music, based in Mountain View, California. The acquisition is part of the Company’s strategy to expand its presence in the digital music and home-entertainment control environment. CG Total consideration paid was $20.6 million, which includes $0.6 million in transaction costs. Under the terms of the purchase agreement, the Company acquired all of the outstanding shares of Slim Devices for $20.0 million in cash, plus a possible performance-based payment, payable in the first calendar quarter of 2010. The performance-based payment is based on net revenues from the sale of products and services in calendar year 2009 derived from Slim Devices’ technology. No payment is due if the applicable net revenues total $40 million or less. The maximum performance-based payment is $89.5 million. The total performance-based payment amount, if any, will be recorded in goodwill and will not be known until the end of calendar year 2009. The acquisition has been accounted for using the purchase method of accounting. Therefore, the assets acquired and liabilities assumed were recorded at their estimated fair values as determined by Company management based on information available at the date of acquisition. The Company obtained an independent appraisal to assist management in its determination of the fair values of the acquired identifiable intangible assets. The results of operations of the acquired company were included in Logitech’s consolidated statement of income from the acquisition date forward, and were not material to the Company’s reported results. Pro forma results of operations are not presented, as the results of operations of Slim Devices at the time of acquisition were not material to the Company’s consolidated financial statements for any period presented. The total consideration, including transaction costs, was allocated to the fair values of assets acquired and liabilities assumed as follows (in thousands): Tangible assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intangible assets acquired $ 1,749 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trademark/ trade name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Customer relationships and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax liability related to intangible assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 3,100 520 10,683 24,303 (473) (4,998) Total Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,581 The technology relates to proprietary hardware and software developed by Slim Devices including the Squeezebox, the Transporter, the SlimServer software and the SqueezeNetwork. The SqueezeNetwork delivers content to devices such as the Squeezebox and Transporter directly from the Internet, without requiring a PC. F-19 LOGITECH INTERNATIONAL S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Trademark/trade name relates to the Slim Devices product brand names. The value of the trademark/ tradename was determined using the royalty savings approach, which estimates the value of the assets by capitalizing the royalties saved as a result of acquiring the assets. The intangible assets acquired are amortized on a straight-line basis over their estimated useful lives, ranging from one month to 7 years. The technology associated with the acquisition includes $1.0 million of in-process research and development, which had not reached technological feasibility at the time of the acquisition and had no further alternative uses, and was expensed to research and development expense upon consummation of the acquisition. The values of the existing technology, in-process technology and customer relationships were determined by estimating the expected cash flows from the projects once commercially viable, discounting the net cash flows back to their present value and then applying a percentage of completion to the calculated value. The goodwill associated with the acquisition is not subject to amortization and is not expected to be deductible for income tax purposes. Note 6 — Balance Sheet Components The following provides a breakout of certain balance sheet components (in thousands): Accounts receivable: Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allowance for returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allowance for customer programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . March 31, 2007 2006 $ 404,373 (3,322) (15,821) (74,853) $ 356,883 (2,988) (11,653) (52,393) $ 310,377 $ 289,849 Inventories: Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Work-in-process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 41,542 251 176,171 $ 34,860 184 161,820 $ 217,964 $ 196,864 Other current assets: Tax and VAT refund receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,695 22,705 25,857 $ 11,565 8,517 14,397 $ 68,257 $ 34,479 Property, plant and equipment: Plant and buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Computer equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Computer software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 31,351 103,016 34,469 42,703 $ 32,181 80,379 28,829 32,019 Less: accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Construction-in-progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211,539 (135,225) 173,408 (116,915) 76,314 7,715 3,025 56,493 15,288 3,029 $ 87,054 $ 74,810 Other assets: Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash surrender value of life insurance contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . Deposits and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,639 10,888 2,537 $ 21,560 9,421 2,082 $ 34,064 $ 33,063 F-20 LOGITECH INTERNATIONAL S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Note 7 — Short-term Investments During the second quarter of fiscal year 2007, the Company invested in U.S. Government Guaranteed Student Loan Issues, which are auction rate securities collateralized by student loans and guaranteed by the United States Department of Education. Although the student loans securitizing the auction rate securities have maturity dates greater than 15 years, these investments are considered highly liquid and typically reset every 28 days. These securities are classified as available-for-sale as of March 31, 2007 and are reported at fair value. As of March 31, 2007, the Company had not recognized any unrealized gains or losses for its auction rate securities. Note 8 — Investments In July 2003, the Company made a $15.1 million cash investment in Anoto Group AB (“Anoto”), a publicly traded Swedish technology company from which Logitech licenses its digital pen technology. The investment represented approximately 9.5% of Anoto’s outstanding shares as of March 31, 2006. During fiscal year 2007, the Company sold its Anoto investment and recognized a gain of $9.1 million, which was included in other income, net for fiscal year 2007. CG In connection with the investment, a Logitech executive was elected to the Anoto board of directors. The license agreement requires Logitech to pay a license fee for the rights to use the Anoto technology and a license fee on the sales value of digital pen solutions sold by Logitech. Also, the agreement includes non-recurring engineering (“NRE”) service fees primarily for specific development and maintenance of Anoto’s licensed technology. During fiscal years 2007 and 2006, expenses incurred for license fees to Anoto were $0.3 million and $0.5 million. Expenses incurred for license fees and NRE service fees to Anoto were $0.7 million in fiscal year 2005. Note 9 — Goodwill and Other Intangible Assets The following table summarizes the activity in the Company’s goodwill account during the year ended March 31, 2007 (in thousands): Balance as of March 31, 2006 . . . . . . . . . . . . . . . . Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 135,396 44,595 Balance as of March 31, 2007 . . . . . . . . . . . . . . . . $ 179,991 The increase in goodwill in fiscal year 2007 consists primarily of the estimated deferred payment of $33.7 million related to the acquisition of Intrigue Technologies. See Note 16 to the consolidated financial statements for further discussion of the estimated deferred payment. The remainder of the increase is related to the acquisition of Slim Devices which increased goodwill by $10.7 million and to a lesser extent foreign currency translation adjustments. The Company intends to fully integrate Slim Devices’ business into its existing operations, and discrete financial information for Slim Devices will not be maintained. Accordingly, the acquired goodwill will be evaluated for impairment at the total enterprise level. The Company performs its annual goodwill impairment test during its fiscal fourth quarter. While the Company has fully integrated all of its acquired companies, the Company continues to maintain discrete financial information for 3Dconnexion and, accordingly, determines impairment of the goodwill acquired with the 3Dconnexion acquisition at the entity level. All other acquired goodwill is evaluated for impairment at the total enterprise level. Based on impairment tests performed, there has been no impairment of the Company’s goodwill to date. F-21 LOGITECH INTERNATIONAL S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The Company’s acquired other intangible assets subject to amortization were as follows (in thousands): March 31, 2007 March 31, 2006 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Trademark/tradename . . . Technology . . . . . . . . . . . Customer contracts . . . . . $19,943 34,423 2,120 $56,486 $(14,902) (21,248) (1,416) $(37,566) $ 5,041 13,175 704 $18,920 $16,897 25,423 600 $42,920 $(13,497) (18,028) (220) $(31,745) $ 3,400 7,395 380 $11,175 For fiscal years 2007, 2006 and 2005, amortization expense for other intangible assets was $4.9 million, $4.6 million and $6.3 million. The Company expects that annual amortization expense for the fiscal years ending 2008, 2009, 2010, 2011 and 2012 will be $5.0 million, $4.0 million, $3.0 million, $3.0 million and $2.0 million; and $1.9 million in total thereafter. Note 10 — Financing Arrangements Short-term Credit Facilities The Company had several uncommitted, unsecured bank lines of credit aggregating $126.2 million at March 31, 2007. There are no financial covenants under these lines of credit with which the Company must comply. The Company had letters of credit and guarantees of $2.3 million and zero at March 31, 2007 and March 31, 2006, which reduce the amounts available under the lines of credit. Borrowings outstanding were $11.9 million and $14.1 million at March 31, 2007 and 2006. The borrowings under these agreements were denominated in Japanese yen at a weighted average annual interest rate of 1.7% at March 31, 2007 and 1.3% at March 31, 2006 and were due on demand. Long-term Debt The Company had CHF 170.0 million ($95.6 million based on exchange rates at date of issuance) aggregate principal amount of 1% convertible bonds which were called for early redemption in accordance with their terms. As of November 11, 2005, all outstanding bonds had been presented for conversion into 10,897,386 Logitech shares at the conversion price of CHF 15.60 per share ($11.86 based on exchange rates at November 11, 2005). The conversion was satisfied through delivery of treasury shares. Note 11 — Shareholders’ Equity Exchange of Nasdaq-Listed American Depositary Shares In September 2006, the Company announced its intent to exchange its Nasdaq-listed ADSs for Logitech shares and continue its Nasdaq listing with shares in lieu of ADSs, so that the same Logitech shares trade on the Nasdaq Global Select Market as well as on the SWX Swiss Exchange. The exchange took effect on October 23, 2006. On the effective date, the Logitech ADS program was terminated and one ADS was exchanged on a mandatory basis for one share. Since the exchange of the Nasdaq-listed ADSs for Logitech shares was a one-for-one exchange, there was no impact on financial statement or per share amounts. Stock Split In June 2006, the Company’s shareholders approved a two-for-one split of Logitech’s shares, which took effect on July 14, 2006. In June 2005, the Company’s shareholders also approved a two-for-one split of Logitech’s shares, which took effect on June 30, 2005. All references to share and per-share data for all periods presented herein have been adjusted to give effect to these stock splits. F-22 LOGITECH INTERNATIONAL S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Authorized and Conditional Share Capital In June 2006, the Company’s shareholders renewed the approval of 40 million authorized shares for use in acquisitions, mergers and other transactions. This authorization expires at the Company’s Annual General Meeting in 2008. In addition, the Company has conditionally authorized shares totaling 60,661,860 to cover option rights granted or other equity rights that may be granted to employees, officers and directors of Logitech under its employee equity incentive plans. The Company has also conditionally authorized shares totaling 10,900,000 to cover conversion rights granted in connection with the issue of the Company’s convertible bonds. As of November 11, 2005, all outstanding bonds had been presented for conversion. The conversion was satisfied through delivery of treasury shares. The conditional share capital increase for the total authorized shares of 71,561,860 does not have an expiration date. CG Dividends Pursuant to Swiss corporate law, Logitech International S.A. may only pay dividends in Swiss francs. The payment of dividends is limited to certain amounts of unappropriated retained earnings (CHF 378.3 million or $310.1 million based on exchange rates at March 31, 2007) and is subject to shareholder approval. The Company will recommend to its shareholders that no cash dividends be paid in 2007. Legal Reserves Under Swiss corporate law, a minimum of 5% of the Company’s annual net income must be retained in a legal reserve until this legal reserve equals 20% of the Company’s issued and outstanding aggregate par value per share capital. These legal reserves represent an appropriation of retained earnings that are not available for distribution and totaled $7.9 million at March 31, 2007. Additionally, under Swiss corporate law, the Company is required to establish a reserve equal to the amount of treasury shares repurchased at year-end. The reserve for treasury shares, which is not available for distribution, totaled $217.1 million at March 31, 2007. Share Repurchases The Company employs share buyback programs as an efficient way to return value to shareholders. In May 2006, the Company announced the approval by its board of directors of a new share buyback program authorizing the repurchase of up to $250 million of its shares. The program expires at the Company’s 2009 Annual General Meeting at the latest. Under this program, the Company repurchased 2.7 million shares for $76.6 million during the year ended March 31, 2007. The approved amount remaining under this program at March 31, 2007 is $173.4 million. In June 2005, the Company announced the approval by its board of directors of a buyback program of up to CHF 300.0 million (approximately $235.0 million based on exchange rates at the date of announcement). Under this program, which was completed in the quarter ended December 31, 2006, the Company repurchased a total of 11.3 million shares for $236.1 million. F-23 LOGITECH INTERNATIONAL S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) During fiscal years 2007, 2006 and 2005, the Board of Directors authorized the following share buyback programs (in thousands): Date of Announcement Approved Buyback Amount Equivalent USD Amount(1) Expiration Date May 2006 . . . . . . . . June 2005 . . . . . . . . April 2004 . . . . . . . USD 250,000 CHF 300,000 CHF 250,000 $250,000 $235,000 $200,000 June 2009 June 2008 June 2006 (1) Represents the approved buyback amount in U.S. dollars, calculated based on exchange rates on the announcement dates. The Company repurchased shares under these buyback programs as follows (in thousands): Amount Repurchased During Year ended March 31,(1) Program to date 2007 2006 2005 Date of Announcement Shares Amount Shares Amount Shares Amount Shares Amount May 2006 . . . . . . . . . . . . . . . . . June 2005 . . . . . . . . . . . . . . . . . April 2004 . . . . . . . . . . . . . . . . . 2,726 11,286 14,974 $76,610 — $ — $ 76,610 $174,613 $236,098 8,402 $61,485 $ 66,739 $201,264 — $ — 3,874 2,726 2,884 — $ — — $ — $134,525 11,100 (1) Represents the amount in U.S. dollars, calculated based on exchange rates on the repurchase dates. Note 12 — Accumulated Other Comprehensive Loss The components of accumulated other comprehensive loss were as follows (in thousands): Cumulative translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . Adoption of SFAS 158, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . Change in unrealized gain on investments, net of tax . . . . . . . . . . Reclassification adjustment for net realized gains on investment included in net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred realized hedging gains . . . . . . . . . . . . . . . . . . . . . . . . . . . $(38,529) (2,728) 9,400 (9,400) 1,099 $(48,224) $(44,910) — 19,611 — 402 — — — 1,019 2007 2006 2005 $(40,158) $(28,211) $(43,891) Note 13 — Employee Benefit Plans Employee Share Purchase Plans and Stock Option Plans See Note 4 to the consolidated financial statements for further discussion of the employee share purchase plans and stock option plans. Defined Contribution Plans Certain of the Company’s subsidiaries have defined contribution employee benefit plans covering all or a portion of their employees. Contributions to these plans are discretionary for certain plans and are based on specified or statutory requirements for others. The charges to expense for these plans for fiscal years 2007, 2006 and 2005, were $5.7 million, $4.1 million and $3.0 million. F-24 LOGITECH INTERNATIONAL S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Defined Benefit Plans Two of the Company’s subsidiaries sponsor noncontributory defined benefit pension plans covering substantially all of their employees. Retirement benefits are provided based on employees’ years of service and earnings, or in accordance with applicable employee benefit regulations. The Company’s practice is to fund amounts sufficient to meet the requirements set forth in the applicable employee benefit and tax regulations. In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (“SFAS 158”). This standard requires employers to recognize the underfunded or overfunded status of defined benefit pension and postretirement plans as an asset or liability in its statement of financial position, and recognize changes in the funded status in the year in which the changes occur through accumulated other comprehensive income, which is a component of stockholders’ equity. This standard also requires a change in the measurement of a plan’s assets and benefit obligations as of the end date of the employer’s fiscal year. SFAS 158 is effective for fiscal years ending after December 15, 2006, except for the measurement date provisions, which are effective for fiscal years ending after December 15, 2008. As a result of the application of SFAS 158 as of March 31, 2007, the Company recognized the net underfunded status of these plans, resulting in an increase to net pension liability of $3.9 million, an increase to deferred tax assets of to accumulated other $0.9 million, additional expense of $0.3 million, and a corresponding adjustment comprehensive loss of $2.7 million. The Company does not expect the measurement date provisions to have a significant impact on the Company’s consolidated financial statements. CG Net pension costs for fiscal years 2007, 2006 and 2005 were $3.0 million, $2.9 million and $3.3 million. The net pension liability recognized at March 31, 2007 and 2006 was $7.4 million and $4.5 million. If SFAS 158 had been applicable for fiscal year 2006, the net pension liability recognized would have been $6.8 million. As of the plans’ measurement date of March 31, the fair value of plan assets was $27.4 million and $22.3 million in 2007 and 2006, the projected benefit obligation was $34.8 million and $29.1 million and the accumulated benefit obligation was $21.6 million and $20.1 million. Deferred Compensation Plan One of the Company’s subsidiaries offers a management deferred compensation plan which permits eligible employees to make 100%-vested salary and incentive compensation deferrals within established limits, which are invested in Company-owned life insurance contracts held in a Rabbi Trust. The Company does not make contributions to the plan. The cash surrender value of the insurance contracts was approximately $10.9 million and $9.4 million at March 31, 2007 and 2006 and was included in other assets. Expenses and gains or losses related to the insurance contracts are included in other income, net and have not been significant to date. The unsecured obligation to pay the compensation deferred, adjusted to reflect the positive or negative performance of investment measurement options selected by each participant, was approximately $12.3 million and $10.7 million at March 31, 2007 and 2006 and was included in other liabilities. The additional compensation expenses related to investment performance have not been significant to date. Note 14 — Income Taxes The Company is incorporated in Switzerland but operates in various countries with differing tax laws and rates. Further, a portion of the Company’s income before taxes and the provision for income taxes are generated outside of Switzerland. The portion of the Company’s income before taxes for fiscal years 2007, 2006 and 2005 subject to foreign income taxes was $113.8 million, $92.2 million, and $58.2 million. Consequently, the weighted average expected tax rate may vary from period to period to reflect the generation of taxable income in different tax jurisdictions. F-25 LOGITECH INTERNATIONAL S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The provision for income taxes is summarized as follows (in thousands): Year ended March 31, 2007 2006 2005 Current: Swiss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,644 36,295 $ 3,950 31,497 $ 2,773 29,637 Deferred: Swiss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (89) (15,141) (178) (6,520) (620) (5,450) Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,709 $28,749 $26,340 Deferred income tax assets and liabilities consist of the following (in thousands): Deferred tax assets: Net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other tax credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax liabilities: Acquired intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrecognized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . March 31, 2007 2006 $ 457 — 32,856 10,032 43,345 $ — 1,389 25,946 2,742 30,077 (4,981) — (4,981) (453) (1,659) (2,112) Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $38,364 $27,965 The current and deferred tax provision is calculated based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed. Adjustments for differences between the tax provisions and tax returns are recorded when identified, which is generally in the third or fourth quarter of the subsequent year. The Company maintains reserves for tax contingencies within the accrued liabilities account. These reserves involve considerable judgment and estimation and are continuously monitored by management based on the best information available including changes in tax regulations, the outcome of relevant court cases, and other information. The Company is currently under examination by various taxing authorities. Although the outcome of any tax audit is uncertain, management believes it has adequately provided in the Company’s financial statements for any additional taxes that it may be required to pay as a result of such examinations. If the payment ultimately proves to be unnecessary, the reversal of the tax liabilities would result in tax benefits being recognized in the period the Company determines such liabilities are no longer necessary. However, if a final tax assessment exceeds the Company’s estimate of tax liabilities, an additional tax provision will be recorded. Such adjustments could have a material impact on the Company’s results of operations in future periods. Management regularly assesses the ability to realize deferred tax assets recorded in the Company’s entities based upon the weight of available evidence, including such factors as the recent earnings history and expected future taxable income. In the event future taxable income is below management’s estimates or is generated in tax F-26 LOGITECH INTERNATIONAL S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) jurisdictions different than projected, the Company could be required to increase the valuation allowance for deferred tax assets. This would result in an increase in the Company’s effective tax rate. Deferred tax assets relating to tax benefits of employee stock option grants have been reduced to reflect the exercises in fiscal year 2007. Some exercises resulted in tax deductions in excess of previously recorded benefits based on the option value at the time of grant (“windfalls”). Although these additional tax benefits are reflected in net operating loss carryforwards, pursuant to SFAS 123(R), the additional tax benefit associated with the windfall is not recognized until the deduction reduces cash taxes payable. When the tax benefit reduces cash taxes payable, the Company will credit equity. During fiscal year 2007, the Company recorded a credit to equity of $14.7 million. As of March 31, 2007, the net operating loss and tax credit carryforwards related to unrecognized tax benefits of $47.2 million are not reflected in the Company’s deferred tax assets. Substantially all of the Company’s foreign net operating loss and tax credit carryforwards for income tax purposes of $100.6 million and $8.3 million are related to stock options. If not utilized, the net operating loss carryforwards will expire in fiscal years 2019 to 2026, and the tax credit carryforwards will expire in fiscal years 2008 to 2027. CG The expected tax provision at the weighted average rate is generally calculated using pre-tax accounting income or loss in each country multiplied by that country’s applicable statutory tax rates. The difference between the provision for income taxes and the expected tax provision at the weighted average tax rate is reconciled below (in thousands): Year ended March 31, 2007 2006 2005 Expected tax provision at weighted average rate . . . . . . . . Foreign income taxes at different rates . . . . . . . . . . . . . . . Research and development tax credits . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $34,393 (2,477) (1,868) (4,339) $36,251 (5,543) (140) (1,819) $29,087 (2,580) (304) 137 Total provision for income taxes . . . . . . . . . . . . . . . . . . . . $25,709 $28,749 $26,340 The Company has negotiated a tax holiday on certain earnings in China which is effective from January 2006 through December 2010. The tax holiday represents a tax exemption aimed to attract foreign technological investment in China. The impact of the tax holiday decreased income tax expense by approximately $2.5 million for fiscal year 2007. The benefit of the tax holiday on net income per share (diluted) was approximately $0.01 in fiscal year 2007. Note 15 — Derivative Financial Instruments – Foreign Exchange Hedging The Company enters into foreign exchange forward contracts (accounted for as cash flow hedges) to hedge against exposure to changes in foreign currency exchange rates related to forecasted inventory purchases by subsidiaries. Hedging contracts generally mature within three months. Gains and losses in the fair value of the effective portion of the contracts are deferred as a component of accumulated other comprehensive loss until the hedged inventory purchases are sold, at which time the gains or losses are reclassified to cost of goods sold. If the underlying transaction being hedged fails to occur or if a portion of the hedge does not generate offsetting changes in the foreign currency exposure of forecasted inventory purchases, the Company immediately recognizes the gain or loss on the associated financial instrument in other income. The Company did not record any gains or losses due to hedge ineffectiveness during fiscal years 2007, 2006 and 2005. The notional amounts of foreign exchange forward contracts outstanding at March 31, 2007 and 2006 were $38.5 million and $13.6 million. The notional amount represents the future cash flows under contracts to purchase foreign currencies. Deferred realized gains totaled $0.3 million at March 31, 2007 and are expected to be reclassified to cost of F-27 LOGITECH INTERNATIONAL S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) goods sold when the related inventory is sold. Realized net losses reclassified to cost of goods sold during fiscal years 2007, 2006 and 2005 were $0.3 million, $2.6 million and $1.0 million. The Company also enters into foreign exchange forward contracts to reduce the short-term effects of foreign currency fluctuations on certain foreign currency receivables or payables. The gains or losses on the foreign exchange forward contracts offset the transaction losses or gains on the foreign currency receivables or payables recognized in earnings. The foreign exchange forward contracts are entered into on a monthly basis and generally mature within one to three months. Further, the Company may enter into foreign exchange swap contracts to extend the terms of its foreign exchange forward contracts. The notional amounts of foreign exchange forward contracts outstanding at March 31, 2007 and 2006 were $9.0 million and $8.6 million. The notional amounts of foreign exchange swap contracts outstanding at March 31, 2007 and 2006 were $11.5 million and $5.9 million. Unrealized net losses on the contracts were immaterial at March 31, 2007. Note 16 — Commitments and Contingencies The Company leases facilities under operating leases, certain of which require it to pay property taxes, insurance and maintenance costs. Operating leases for facilities are generally renewable at the Company’s option and usually include escalation clauses linked to inflation. Future minimum annual rentals under non-cancelable operating leases at March 31, 2007 are as follows (in thousands): Year ending March 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,060 11,117 9,305 7,865 7,294 15,237 $62,878 Rent expense was $9.9 million, $8.7 million and $7.0 million during the years ended March 31, 2007, 2006 and 2005. At March 31, 2007, fixed purchase commitments for capital expenditures amounted to $21.4 million, and primarily related to commitments for manufacturing equipment, tooling and leasehold improvements. Also, the Company has commitments for inventory purchases made in the normal course of business to original design manufacturers, contract manufacturers and other suppliers. At March 31, 2007, fixed purchase commitments for inventory amounted to $124.1 million, which are expected to be fulfilled within the fiscal quarter ending June 30, 2007. The Company also had other commitments totaling $28.3 million for consulting services, information technology services, marketing arrangements and advertising. Although open purchase orders are considered enforceable and legally binding, the terms generally allow the Company the option to reschedule and adjust its requirements based on the business needs prior to delivery of goods or performance of services. The Company has guaranteed the purchase obligations of some of its contract manufacturers to certain component suppliers. These guarantees have a term of one year and are automatically extended for one or more additional years as long as a liability exists. The amount of the purchase obligations of these manufacturers varies over time, and therefore the amounts subject to Logitech’s guarantees similarly varies. At March 31, 2007, the amount of these outstanding guaranteed purchase obligations was approximately $3.1 million. The Company does not believe, based on historical experience and information currently available, that it is probable that any amounts will be required to be paid under these guarantee arrangements. F-28 LOGITECH INTERNATIONAL S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Logitech indemnifies some of its suppliers and customers for losses arising from matters such as intellectual property rights 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’ fees. No amounts have been accrued for indemnification provisions at March 31, 2007. The Company does not believe, based on historical experience and information currently available, that it is probable that any amounts will be required to be paid under its indemnification arrangements. In May 2004, the Company acquired Intrigue Technologies, Inc., a privately held provider of advanced remote controls. The purchase agreement provides for deferred payments to Intrigue’s former shareholders based on the highest net sales from products incorporating Intrigue’s technology during the revenue measurement period, defined as any consecutive four-quarter period beginning in April 2006 through September 2007. The total deferred payment amount will vary with net sales in the revenue measurement period. The payment amount would approximate 27% of such net sales at the highest net sales level, although the percentage could be higher at lower net sales levels. Based on the net sales of remote controls for fiscal year 2007, the Company will be obligated to make a deferred payment of at least $33.7 million. The total deferred payment amount could be higher, and will not be known until the end of the revenue measurement period. The total deferred payment will be paid by December 31, 2007. As of March 31, 2007, a deferred payment of $33.7 million has been recorded as an adjustment to goodwill. CG All of the Company’s products are subject to the European Union’s (“EU”) Waste Electrical and Electronic Equipment Directive (“WEEE”), which came into effect in August 2004 and requires producers of electrical treatment and disposal of covered goods to be financially responsible for specified collection, recycling, products. Producer obligations also include specified collection, recycling, treatment and disposal of equipment that had been placed in the EU marketplace prior to August 2005, and has reached its end of life. To date, specific legal requirements have not been finalized by all member states, with certain member states delaying implementation until 2007 or beyond. In those countries where legislation is not in effect, the Company has concluded that the costs of managing and recycling historical and future waste equipment are not reasonably estimable, and no liability has been recognized. In those countries which have enacted legislation, the Company has provided for the costs of managing and recycling historical and future waste equipment. These costs, which are not material, are based on the Company’s estimated market share of the total cost, which depends on a number of factors, including administration and treatment costs as well as the commercial cost of recycling. The Company is involved in a number of lawsuits and claims relating to commercial matters that arise in the normal course of business. The Company believes these lawsuits and claims are without merit and intends to vigorously defend against them. However, there can be no assurances that its defenses will be successful, or that any judgment or settlement in any of these lawsuits would not have a material adverse impact on the Company’s business, financial condition and results of operations. F-29 LOGITECH INTERNATIONAL S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Note 17 — Interest and Other Income Interest and other income, net was comprised of the following (in thousands): Year ended March 31, 2007 2006 2005 Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,083 (350) $ 5,512 (1,921) $ 3,771 (3,630) Interest income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,733 $ 3,591 $ 141 Foreign currency exchange gains, net . . . . . . . . . . . . . . . . . . . . . . . . . Gain on sale of investments, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Write-off of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,190 9,048 — 724 $ 7,580 560 (1,168) 380 $ 3,522 — — 269 Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,962 $ 7,352 $ 3,791 Note 18 — Segment Information The Company operates in one operating segment, which is the design, manufacturing and marketing of personal peripherals for personal computers and other digital platforms. Geographic net sales information in the table below is based on the location of the selling entity. Long-lived assets, primarily fixed assets, are reported below based on the location of the asset. Retail and OEM net sales to unaffiliated customers by geographic region were as follows (in thousands): Year ended March 31, 2007 2006 2005 Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . North America . . . . . . . . . . . . . . . . . . . . . . . . . . . Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,027,852 729,207 309,510 $ 887,736 617,942 291,037 $ 733,667 503,356 245,603 Total net sales . . . . . . . . . . . . . . . . . . . . . . . $2,066,569 $1,796,715 $1,482,626 In fiscal years 2007 and 2005, no single country other than the United States represented more than 10% of the Company’s total consolidated net sales. In fiscal year 2006, no single country other than the United States and Germany represented more than 10% of the Company’s total consolidated net sales. In fiscal year 2007, one customer represented 14% of net sales. In fiscal year 2006, two customers represented 14% and 11% of net sales. In fiscal year 2005, two customers represented 14% and 10% of net sales. As of March 31, 2007, one customer represented 16% of total accounts receivable. As of March 31, 2006, two customers represented 16% and 12% of total accounts receivable. F-30 LOGITECH INTERNATIONAL S.A. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Net sales by product family for fiscal years 2007, 2006 and 2005 were as follows (in thousands): Year ended March 31, 2007 2006 2005 Retail – Cordless . . . . . . . . . . . . . . . . . . . . . . . . . Retail – Corded . . . . . . . . . . . . . . . . . . . . . . . . . . Retail – Video . . . . . . . . . . . . . . . . . . . . . . . . . . . Retail – Audio . . . . . . . . . . . . . . . . . . . . . . . . . . . Retail – Gaming . . . . . . . . . . . . . . . . . . . . . . . . . Retail – Remote Controls . . . . . . . . . . . . . . . . . . Retail – Other . . . . . . . . . . . . . . . . . . . . . . . . . . . OEM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 525,885 332,129 313,932 404,069 145,784 91,739 30,857 222,174 $ 448,358 314,695 273,340 334,496 136,944 57,227 22,973 208,682 $ 453,519 296,346 201,626 158,134 146,517 19,320 18,942 188,222 Total net sales . . . . . . . . . . . . . . . . . . . . . . . $2,066,569 $1,796,715 $1,482,626 CG Long-lived assets by geographic region were as follows (in thousands): Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,800 25,555 46,724 $10,019 26,321 40,318 Total long-lived assets . . . . . . . . . . . . . . . . . . . . . . . . . . $89,079 $76,658 March 31, 2007 2006 Long-lived assets in China, the United States and Switzerland each represented more than 10% of the Company’s total consolidated long-lived assets at March 31, 2007. At March 31, 2006, long-lived assets in China, the United States, Switzerland and Taiwan each represented more than 10% of the Company’s total consolidated long-lived assets. Note 19 — Other Disclosures Required by Swiss Law Balance Sheet Items The amounts of certain balance sheet items were as follows (in thousands): Prepayments and accrued income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pension liabilities, current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fire insurance value of property, plant and equipment . . . . . . . . . . . . . . . . . . . $ 11,213 $320,043 $ 50 $162,666 $ 8,430 $290,858 $ 43 $146,077 March 31, 2007 2006 Statement of Income Items Total personnel expenses amounted to $223.6 million, $173.5 million and $146.4 million in fiscal years 2007, 2006 and 2005. F-31 LOGITECH INTERNATIONAL S.A. QUARTERLY FINANCIAL DATA (Unaudited) The following table contains selected unaudited quarterly financial data for fiscal years 2007 and 2006 (in thousands except per share amounts): Year ended March 31, 2007 Year ended March 31, 2006 First Second Third Fourth First Second Third Fourth Net sales . . . . . . . . . . . . . . . $393,282 $502,041 $658,512 $512,734 $334,702 $422,101 $573,856 $466,056 Gross profit . . . . . . . . . . . . . 148,869 238,657 Operating expenses: Marketing and 172,965 120,912 176,991 107,372 132,362 185,507 selling . . . . . . . . . . . 51,198 70,445 84,146 66,475 45,983 57,424 66,067 52,031 Research and development . . . . . . 24,928 26,118 28,778 28,432 21,018 21,491 22,380 23,064 General and administrative . . . . . 20,995 24,225 26,137 26,786 15,144 15,207 16,387 19,003 Total operating expense . . . . . . 139,061 94,098 54,771 99,596 Operating income . . . . . . . . Net income . . . . . . . . . . . . . $ 30,147 $ 49,204 $ 94,304 $ 56,193 $ 22,397 $ 36,237 $ 71,348 $ 51,123 Net income per share: 121,693 55,298 120,788 52,177 104,834 80,673 82,145 25,227 94,122 38,240 97,121 23,791 Basic . . . . . . . . . . . . . . $ Diluted . . . . . . . . . . . . . $ .17 $ .16 $ .27 $ .26 $ .52 $ .49 $ .31 $ .29 $ .13 $ .12 $ .20 $ .18 $ .38 $ .36 $ .28 .26 Shares used to compute net income per share: Basic . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . 182,648 190,646 182,502 190,276 182,652 191,145 182,738 191,091 176,914 197,813 177,377 199,669 185,794 200,380 185,365 196,114 The following table sets forth certain quarterly financial information as a percentage of net sales: Year ended March 31, 2007 Year ended March 31, 2006 First Second Third Fourth First Second Third Fourth Net sales . . . . . . . . . . . . . . . . . . . . . . . . Gross profit . . . . . . . . . . . . . . . . . . . . . Operating expenses: Marketing and selling . . . . . . . . . Research and development . . . . . General and administrative . . . . . Total operating expense . . . . Operating income . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 30.7 36.2 34.5 34.5 32.3 31.4 32.1 31.9 13.0 6.3 5.4 24.7 6.0 7.7% 14.0 5.2 4.9 12.8 4.4 3.9 13.0 5.5 5.2 13.7 6.3 4.6 13.6 5.1 3.6 11.5 3.9 2.8 11.2 4.9 4.0 22.3 9.1 8.6% 12.4% 11.0% 18.2 14.1 20.1 11.8 24.1 10.4 9.8% 14.3% 11.0% 6.7% 21.1 15.1 24.6 7.5 23.7 10.8 F-32 LOGITECH INTERNATIONAL S.A. VALUATION AND QUALIFYING ACCOUNTS For the Fiscal Years Ending March 31, 2007, 2006 and 2005 (in thousands) Schedule II Fiscal Year Description Balance at beginning of period Charged to Income Statement Write-offs charged to allowance Balance at end of period 2007 2006 2005 2007 2006 2005 2007 2006 2005 2007 2006 2005 2007 2006 2005 Allowance for doubtful accounts . . . . . . . . . . . . . . . Allowance for doubtful accounts . . . . . . . . . . . . . . . Allowance for doubtful accounts . . . . . . . . . . . . . . . Cooperative Marketing Arrangements . . . . . . . . . . . Cooperative Marketing Arrangements . . . . . . . . . . . Cooperative Marketing Arrangements . . . . . . . . . . . Customer Incentive Programs . . . . . . . . . . . . . . . . . Customer Incentive Programs . . . . . . . . . . . . . . . . . Customer Incentive Programs . . . . . . . . . . . . . . . . . Reserve for Sales Returns . . . . . . . . . . . . . . . . . . . . Reserve for Sales Returns . . . . . . . . . . . . . . . . . . . . Reserve for Sales Returns . . . . . . . . . . . . . . . . . . . . Price Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . Price Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . Price Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,988 $ 5,166 $ 6,068 $25,646 $18,418 $10,561 $24,388 $12,635 $11,396 $11,653 $ 6,416 $11,058 $ 2,359 $ 2,669 $ 3,906 $ $ $ 527 9 55 $75,654 $56,865 $46,369 $66,456 $46,971 $31,576 $73,899 $59,262 $44,116 $29,304 $15,579 $12,849 $ (193) $ (2,187) (957) $ $(67,064) $(49,637) $(38,512) $(58,045) $(35,218) $(30,337) $(69,731) $(54,025) $(48,758) $(23,845) $(15,889) $(14,086) $ 3,322 $ 2,988 $ 5,166 $34,236 $25,646 $18,418 $32,799 $24,388 $12,635 $15,821 $11,653 $ 6,416 $ 7,818 $ 2,359 $ 2,669 CG S-1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-100854 and No. 333-140429) of Logitech International S.A. of our report dated May 24, 2007 relating to the financial statements, financial statement schedules, management assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appear in this Form 20-F. Exhibit 12.1 PricewaterhouseCoopers SA CG F. Roth Lausanne, May 24, 2007 F. Rast Exhibit 31.1 CERTIFICATIONS I, Guerrino De Luca, certify that: 1. I have reviewed this annual report on Form 20-F of Logitech International S.A.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial to provide reasonable assurance regarding the reporting to be designed under our supervision, reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. 5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent function): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting. May 25, 2007 Guerrino De Luca Chief Executive Officer Exhibit 31.2 CERTIFICATIONS I, Mark J. Hawkins, certify that: 1. I have reviewed this annual report on Form 20-F of Logitech International S.A.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; CG 4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; c. Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. 5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent function): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting. May 25, 2007 Mark J. Hawkins Chief Financial Officer CERTIFICATIONS Exhibit 32.1 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13A-14(B) OR RULE 15D-14(B) AND SECTION 1350 OF CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE The certification set forth below is being submitted in connection with this annual report on Form 20-F (the “Report”) of Logitech International S.A. (“the Company”) for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code. Guerrino De Luca, the Chief Executive Officer and Mark J. Hawkins, the Chief Financial Officer of the Company, each certify that, to the best of his or her knowledge: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. May 25, 2007 Guerrino De Luca Chief Executive Officer Mark J. Hawkins Chief Financial Officer LOGITECH INTERNATIONAL S.A., APPLES SWISS STATUTORY FINANCIAL STATEMENTS CG 20-F LOGITECH INTERNATIONAL S.A., APPLES SWISS STATUTORY FINANCIAL STATEMENTS TABLE OF CONTENTS Swiss Statutory Balance Sheets (unconsolidated) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . LISA -3 Swiss Statutory Statements of Income (unconsolidated) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . LISA -4 Notes to Swiss Statutory Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . LISA -5 Proposal of the Board of Directors for Appropriation of Retained Earnings . . . . . . . . . . . . . . . . . . . . . . LISA -8 Report of the Statutory Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . LISA -9 Page LISA-2 LOGITECH INTERNATIONAL S.A., APPLES SWISS STATUTORY BALANCE SHEETS (unconsolidated) (In thousands of Swiss francs) March 31, 2007 2006 Current assets: ASSETS Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term bank deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued interest and other receivables . . . . . . . . . . . . . . . . . . . . . . Advances to and amounts receivable from group companies . . . . . CHF Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term assets: Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans to subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provisions on investments in and loans to subsidiaries . . . . . . . . . . Treasury shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other investments and loans, net of provisions and write-off of CHF 8,254 as of March 31, 2007 and CHF 8,253 as of March 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total long-term assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CHF 1,648 261,821 15,092 14,612 293,173 574 380,664 14,148 (2,507) 272,844 — 665,723 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CHF 958,896 CHF CHF LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Payables to group companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accruals and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred unrealized exchange gains . . . . . . . . . . . . . . . . . . . . . . . . CHF Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term liabilities: Payables to group companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shareholders’ equity: Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Legal reserves: General reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reserve for treasury shares . . . . . . . . . . . . . . . . . . . . . . . . . . . Unappropriated retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,547 2,167 1,862 28,576 221,694 250,270 47,902 9,580 272,844 378,300 708,626 Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . CHF 958,896 CHF 1,659 — 840 48,256 50,755 897 379,411 21,776 (2,507) 233,284 20,495 653,356 704,111 15,742 2,950 4,216 22,908 32,982 55,890 47,902 9,580 238,707 352,032 648,221 704,111 CG 20-F The accompanying notes are an integral part of these financial statements. LISA-3 LOGITECH INTERNATIONAL S.A., APPLES SWISS STATUTORY STATEMENTS OF INCOME (unconsolidated) (In thousands of Swiss francs) Year ended March 31, 2007 2006 Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CHF 107,785 CHF 62,000 45,682 Royalty fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,788 Interest income from third parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,657 Interest income from subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,753 Realized exchange gains, net of exchange losses . . . . . . . . . . . . . . . . . . . . . . . . . . . — Provision on investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 401 Gain on disposal of investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,544 Other Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,330 4,906 858 287 — 10,412 5 Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Brand development expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest paid to subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bank interest and charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income, capital and non-recoverable withholding taxes . . . . . . . . . . . . . . . . . . . . . . Loss on disposal of treasury shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175,583 147,825 5,948 26,354 392 4,650 — 2,206 75,095 — 533 4,975 22,475 1,862 6,885 2 1,966 62,927 1,749 10 115,178 102,851 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CHF 60,405 CHF 44,974 The accompanying notes are an integral part of these financial statements. LISA-4 LOGITECH INTERNATIONAL S.A., APPLES NOTES TO SWISS STATUTORY FINANCIAL STATEMENTS Note 1 — Basis of Presentation: The Swiss statutory financial statements of Logitech International S.A. (“the Holding Company”) are prepared in accordance with Swiss Law. The financial statements present the financial position and results of operations of the Holding Company on a standalone basis and do not represent the consolidated financial position of the Holding Company and its subsidiaries. Note 2 — Contingent Liabilities: Logitech International S.A. issued guarantees to various banks for CHF 97,936,700 for lines of credit available to its subsidiaries. At March 31, 2007 the aforementioned credit line facilities were not drawn down. CG Note 3 — Investments: Principal operating subsidiaries include the following: Company Country possession Currency Share capital Purpose % of Logitech Europe S.A. . . . . . . . . . . . . . . . Switzerland 100 CHF 100,000 Administration, research, development, sales and distribution Logitech Inc. . . . . . . . . . . . . . . . . . . . . . . USA 100 USD 11,522,396 Administration, research, Logitech (Intrigue) Inc. . . . . . . . . . . . . . . Canada 100 CAD development, sales and distribution 1,661,340 Research and development 20-F Logitech Technology (Suzhou) Co., Ltd. China ROC 100 USD 22,000,000 Research, development, manufacturing and distribution All subsidiaries are directly or indirectly 100% owned by the Holding Company. Note 4 — Treasury Shares: During fiscal years 2006 and 2007, repurchases of and issuances from the Company’s treasury shares were as follows (total cost in thousands): Number of shares Total cost Held by the holding company at March 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Over/ (under) valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,642,188 CHF 217,873 307,223 12,275,514 (286,389) (17,962,476) (5,423) Held by the holding company at March 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,955,226 CHF 233,284 Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reverse valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,609,600 (5,201,187) 171,474 (137,337) 5,423 Held by the holding company at March 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,363,639 CHF 272,844 LISA-5 LOGITECH INTERNATIONAL S.A., APPLES NOTES TO SWISS STATUTORY FINANCIAL STATEMENTS—(Continued) All references to the number of shares have been adjusted to reflect the effect of the share split undertaken by the Holding Company in July 2006. At March 31, 2006, the Company had repurchased 14,974,514 registered shares, under the buyback program announced in April 2004, for approximately CHF 250,000,000. The program expired at the Company’s 2006 Annual General Meeting. In June 2005, the Board of Directors authorized the repurchase of up to CHF 300,000,000 of the Holding the Company’s 2008 Annual General Meeting. At Company’s registered shares. This program expires at March 31, 2007, the Company had repurchased 11,284,900 registered shares for approximately CHF 300,000,000. In May 2006, the Board of Directors authorized the repurchase of up to USD 250,000,000 of the Holding Company’s registered shares. This program expires at the Company’s 2009 Annual General Meeting. At March 31, 2007, the Company had repurchased 2,725,700 registered shares for approximately USD 76,610,000. Treasury shares are recorded as a long-term asset at the lower of cost or market value. The disposal of treasury shares during the period was to the Company’s directors and employees under the Holding Company’s share option and share purchase plans. The gain or loss on the disposal of repurchased treasury shares is recorded in the statement of income. Note 5 — Authorized and Conditional Share Capital Increases: Share split In June 2006, the Company’s shareholders approved a two-for-one share split whereby one share with a par value of CHF 0.50 was converted into two shares with a par value of CHF 0.25 per share. All references to the number of shares have been adjusted to reflect the effect of the share split undertaken by the Holding Company. Authorized capital In June 2006, the Company’s shareholders renewed their approval of 40,000,000 authorized registered shares for use in acquisitions, mergers and other similar transactions, valid through the period ending June 2008. Conditional capital In June 1996 and June 1995, the Company’s shareholders approved the availability of 32,000,000 and 24,000,000 conditional registered shares. In June 2002, the shareholders approved the continued availability of the aforementioned amounts and approved an additional 24,000,000 conditional registered shares. The remaining number of conditional registered shares at March 31, 2007 was 60,661,860, which are available for issuance upon the exercise of employee stock option or other rights granted under the Company’s employee equity incentive plans. During fiscal years 2007 and 2006, no shares were issued from the aforementioned amounts of conditional shares available. In fiscal years 2007 and 2006, all stock options and purchase plan commitments were satisfied from treasury shares held by the Holding Company. In addition to the aforementioned, the shareholders in June 2001 approved the creation of an additional 10,900,000 conditional registered shares to cover the conversion rights associated with the issue of a convertible bond by Logitech Jersey Ltd, a subsidiary of the Holding Company. As at March 31, 2007, none of the aforementioned conditional registered shares had been issued. LISA-6 LOGITECH INTERNATIONAL S.A., APPLES NOTES TO SWISS STATUTORY FINANCIAL STATEMENTS—(Continued) Note 6 — Significant Shareholders: The Holding Company’s share capital consists of registered shares. To the knowledge of the Holding Company, the only beneficial owner holding more than 5% of the voting rights of the Holding Company at March 31, 2007 is Mr. Daniel Borel, a founder of the Company and its Chairman of the Board, who holds 11,000,000 shares or approximately 5.74%. On May 4, 2007, the Holding Company announced in the Swiss Official Gazette of Commerce that its ownership of its shares in treasury had exceeded 5% of total shares issued. As of May 10, 2007 the Holding Company held approximately 5.2% of total shares issued. Note 7 — Movements on Retained Earnings: During fiscal years 2006 and 2007, movements on retained earnings were as follows (in thousands): CG Retained earnings at the beginning of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . CHF 352,032 CHF 327,892 (20,834) Attribution to reserve for treasury shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,974 Net income for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (34,137) 60,405 Retained earnings at the disposal of the Annual General Assembly . . . . . . . . . . . . CHF 378,300 CHF 352,032 Year ended March 31, 2007 2006 ******************************** 20-F LISA-7 PROPOSAL OF THE BOARD OF DIRECTORS FOR APPROPRIATION OF RETAINED EARNINGS Proposal of the Board of Directors for appropriation of retained earnings were as follows during fiscal years 2006 and 2007 (in thousands): To be carried forward . . . . . . . . . . . . . . . . . . . . . CHF 378,300 CHF 352,032 Year ended March 31, 2007 2006 Proposal of the Board of Directors Resolution of the General Assembly LISA-8 REPORT OF THE STATUTORY AUDITORS Report of the Statutory Auditors to the General Meeting of Logitech International S.A., Apples As statutory auditors, we have audited the accounting records and the financial statements (balance sheet, statement of income and notes) of Logitech International S.A. for the year ended March 31, 2007. These financial statements are the responsibility of the board of directors. Our responsibility is to express an opinion on these financial statements based on our audit. We confirm that we meet the legal requirements concerning professional qualification and independence. Our audit was conducted in accordance with Swiss Auditing Standards, which require that an audit be planned and performed to obtain reasonable assurance about whether the financial statements are free from material misstatement. We have examined on a test basis evidence supporting the amounts and disclosures in the financial statements. We have also assessed the accounting principles used, significant estimates made and the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the accounting records and financial statements and the proposed appropriation of available earnings comply with Swiss law and the company’s articles of incorporation. We recommend that the financial statements submitted to you be approved. PricewaterhouseCoopers SA CG 20-F F. Roth Auditor in charge Lausanne, Switzerland May 24, 2007 F. Rast LISA-9 LOGITECH EXECUTIVE OFFICERS BOARD OF DIRECTORS Daniel Borel Chairman of the Board Daniel Borel Chairman of the Board Guerrino De Luca President and Chief Executive Ofﬁ cer Guerrino De Luca President and Chief Executive Ofﬁ cer Mark J. Hawkins Senior Vice President, Finance and Information Systems, Chief Financial Ofﬁ cer David Henry Senior Vice President, Customer Experience, Chief Marketing Ofﬁ cer Junien Labrousse Executive Vice President, Products Gerald P. Quindlen Senior Vice President, Worldwide Sales and Marketing L. Joseph Sullivan Senior Vice President, Worldwide Operations Robert Wick Senior Vice President, Strategy Gary Bengier Former Senior Vice President, eBay Inc. Matthew Bousquette Chairman, Enesco LLC Erh-Hsun Chang Former Senior Vice President, Worldwide Operations and General Manager, Far East, Logitech Kee-Lock Chua President, Executive Director, Biosensors International Group Ltd. Sally Davis Chief Portfolio Ofﬁ cer, British Telecommunications (To be presented to the shareholders at the Annual General Meeting in June 2007) Robert M. Malcolm President, Global Marketing, Sales and Innovation, Diageo PLC (To be presented to the shareholders at the Annual General Meeting in June 2007) Shin’ichi Okamoto Research and Development Consultant, Former Chief Technology Ofﬁ cer, Sony Computer Entertainment Inc. (Retiring from the Board of Directors in June 2007) Monika Ribar President, Chief Executive Ofﬁ cer, Panalpina Group Visit www.logitech.com for a complete list of Logitech locations Holding Company Logitech International S.A. CH-1143 Apples Switzerland Americas Headquarters Logitech Inc. 6505 Kaiser Drive Fremont, CA 94555 United States Asia Paciﬁ c Headquarters Logitech Asia Paciﬁ c Ltd. Room 1408-10, China Resources Building 26 Harbour Road Wanchai, Hong Kong Europe Headquarters Logitech Europe S.A. Moulin du Choc D CH-1122 Romanel-sur-Morges Switzerland Japan Headquarters Logicool Co. Ltd. Iidabashi MF Bldg., 3F 1-1 Shin Ogawamachi, Shinjuku-ku Tokyo, 162-0814, Japan © 2007 Logitech. All rights reserved. Logitech, the Logitech logo, and other Logitech marks are owned by Logitech and may be registered in the United States and/or in PDS-700-000127 other countries. All other trademarks are the property of their respective owners.

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