Logitech(LOGI) - 2023 Q4 - Annual Report

Part I Business Overview Logitech International S.A. designs, manufactures, and sells digital platform products globally, focusing on innovation, sustainability, and managing competition and supply chain risks Company Overview Logitech International S.A. is a Swiss public company listed on the SIX Swiss Exchange (LOGN) and Nasdaq Global Select Market (LOGI)[17] - The company's mission is to help people pursue their passions, designing products for working, creating, gaming, and streaming, with a focus on sustainability[18] - Logitech's diverse product portfolio, including Creativity & Productivity, Gaming, Video Collaboration, and Music, is classified under a single operating segment: Peripherals[18][19][22] Business Strategy Logitech's growth strategy is built on design, engineering, go-to-market, marketing, and operations, with a strong emphasis on sustainability and advanced technologies - Logitech's future growth is founded on five core capabilities: Design, Engineering, Go-to-market, Marketing, and Operations[22][23] - Design-led engineering, a strategic differentiator, earned 116 design awards in fiscal year 2023 and emphasizes sustainability[22] - The company is expanding engineering into advanced technologies including software, cloud, data analytics, AI, and AR/VR[24] - Logitech uses a global go-to-market network, including direct and indirect sales, with increased investment in the B2B channel[25] - Operations use a hybrid model: 40% in-house manufacturing in Suzhou, China, and the rest outsourced to contract manufacturers, primarily in Asia[27][48][51] - The company accelerated its climate strategy, focusing on 'Reduce, Renew, Restore, and Rethink' programs to eliminate its carbon footprint and enhance sustainability[28] Products Logitech offers a broad product range across Creativity & Productivity, Gaming, Video Collaboration, and Music categories, including pointing devices, keyboards, webcams, headsets, and conference systems - Creativity & Productivity products include pointing devices, keyboards, PC webcams, and tablet accessories like Logitech MX Master 3 and MX Keys[30][32][33][34][35] - Gaming products feature mice like Logitech G PRO X Superlight, keyboards, headsets such as ASTRO A30 Wireless Headset, steering wheels, and Streamlabs software[33][35][36] - Video Collaboration products encompass conference room cameras like Logitech Rally Bar, webcams, and touch-screen controllers such as Logitech Tap[37][40] - Music products include mobile speakers like Ultimate Ears BOOM 3 and audio & wearables such as Blue Microphones Yeti[37][38] Research and Development Logitech invests significantly in R&D to maintain its competitive edge, focusing on digital platforms, video communications, and advanced user interfaces Research and Development Expenses | Fiscal Year | R&D Expenses ($ in millions) | | :---------- | :--------------------------- | | 2023 | 280.8 | | 2022 | 291.8 | | 2021 | 226.0 | - Logitech plans continued significant R&D investment in digital platforms, video communications, wireless technologies, and user interfaces to sustain its competitive position[39] Sales and Distribution Logitech distributes products globally through direct and indirect channels, with significant sales concentration in the Americas and key customers like Amazon and Ingram Micro Sales by Geographic Region (in thousands) | Region | 2023 ($) | 2022 ($) | 2021 ($) | | :----------- | :---------- | :---------- | :---------- | | Americas | 1,930,908 | 2,317,941 | 2,206,552 | | EMEA | 1,299,657 | 1,724,027 | 1,735,682 | | Asia Pacific | 1,308,253 | 1,439,133 | 1,310,045 | | Total Sales | 4,538,818 | 5,481,101 | 5,252,279 | - Sales to customers in the United States accounted for 35% in FY23, 34% in FY22, and 35% in FY21 of total sales[40] - Logitech sells products primarily to distributors, retailers, and e-tailers, supported by a direct sales force and third-party distribution centers[42] Key Customer Sales Concentration (as % of gross sales) | Customer | FY2023 | FY2022 | FY2021 | | :---------------- | :----- | :----- | :----- | | Amazon Inc. | 19% | 17% | 13% | | Ingram Micro Inc. | 13% | 15% | 14% | | TD Synnex | 15% | 14% | N/A | - Customer service and technical support are provided globally through outsourced and in-house teams, utilizing AI for chatbot interactions and self-help[46] Manufacturing Logitech employs a hybrid manufacturing model, with 40% in-house production in Suzhou, China, and the remainder outsourced to contract manufacturers in Asia - Logitech's manufacturing, including final assembly and testing, has approximately 40% of total production handled by its facility in Suzhou, China[48] - The remaining production is outsourced to contract and original design manufacturers, primarily in Asia, including China, Taiwan, and Vietnam[48][49] - This hybrid model enables effective demand response, leverages economies of scale, protects intellectual property, and ensures high-quality production[51] Competition Logitech operates in intensely competitive markets with numerous well-financed rivals across its product categories, facing short product life cycles and rapid technological advancements - Logitech operates in intensely competitive markets with large, well-financed competitors, short product life cycles, and rapid technological advancements[52][53] - Key competitors include Apple, Microsoft, Lenovo (Creativity & Productivity), Razer, Corsair (Gaming), Cisco, Poly (Video Collaboration), and Bose, Sony (Music)[55][56][57][58][59][60][61][62][63] - The convergence of computing devices and consumer electronics markets is expected to intensify competition from established consumer electronics companies[53] Intellectual Property and Proprietary Rights Logitech protects its products and services through patents, trademarks, copyrights, and trade secrets, prioritizing innovation and design quality - Logitech protects its products and services through patents, trademarks, copyrights, and trade secrets[64] - Technological innovation, ease of use, and quality design are considered more significant competitive factors than patent protection[65] - The company actively enforces its trademark and trade name rights globally, protecting software via copyright and product details as trade secrets[65] Material Government Regulations Logitech operates under diverse global regulations, including environmental, tax, import/export, and anti-corruption laws, with increasing compliance costs - Logitech operates globally, subject to diverse laws and regulations including environmental, tax, import/export, and anti-corruption laws[66] - Environmental regulations cover targeted substances, end-of-life stewardship (WEEE), Conflict Minerals (Dodd-Frank), Modern Slavery, Climate & Carbon (Paris Accord), and Energy efficiency[69][70][71][72][73][74][75][76] - Compliance costs are rising but are not expected to materially affect capital expenditures, competitive position, or financial results[67][77] Seasonality Logitech's sales are seasonal, peaking in the third fiscal quarter due to holiday buying, which also impacts cash flow due to inventory build-up - Product sales are typically seasonal, with the highest sales in the third fiscal quarter (October to December) due to holiday buying and enterprise spending[78] - Cash flow is lower in the first half of the fiscal year due to inventory build-up for Q3 and annual dividend payments in September[78] Materials Logitech relies on a limited number of suppliers for key components, posing risks of supply delays, constraints, or increased production costs - Logitech sources certain products and key components from a limited number of suppliers, risking supply delays, constraints, or shortages[79] - The company has faced component shortages and extended lead times for semiconductors and base metals, potentially delaying shipments or increasing production costs[79] Human Capital Resources Logitech employs approximately 7,400 people globally, emphasizing diversity, inclusion, employee well-being, and talent development, with key executive officers leading the company - As of March 31, 2023, Logitech employed approximately 7,400 persons globally, with 2,400 in Suzhou manufacturing operations[80] - The company prioritizes Diversity and Inclusion, with 38% female global office employees and 47% underrepresented minorities in the U.S. workforce as of March 31, 2023[82] - Logitech ensures employee Safety, Health, and Well-being through training, communication, and an EHS Management System certified to ISO 14001 and ISO 45001 in Suzhou[84] - Talent Acquisition and Development programs include a dedicated training center, workshop-based leadership development, mentorship, and coaching[85] - Key executive officers as of May 17, 2023, include Bracken Darrell (President, CEO) and Charles Boynton (CFO)[86] Available Information Logitech's Investor Relations website provides access to earnings releases, SEC filings, proxy statements, and corporate governance information - Logitech's Investor Relations website (ir.logitech.com) offers earnings releases, SEC filings (10-K, 10-Q, 8-K), proxy statements, and corporate governance information[91] Risk Factors Logitech faces significant risks from product innovation, market execution, supply chain, intense competition, macroeconomic conditions, geopolitical instability, trade policies, currency fluctuations, financial unpredictability, and data security threats - Business risks include innovation failure, unsuccessful growth execution, reliance on limited component sources, manufacturing concentration in China/Southeast Asia, and intense competition[97][104][109][112][123] - Global operational risks include adverse macroeconomic and geopolitical conditions (inflation, war in Ukraine), changes in trade policy (US-China tariffs), and currency exchange rate fluctuations[99][150][154][158][164] - Confidential information, cybersecurity, privacy, and intellectual property risks include data loss, unauthorized access, compliance with evolving data privacy laws (GDPR, CCPA, CPRA), and IP infringement claims[100][178][185][188] - Financial risks include unpredictable operating results due to volatile demand, seasonality, economic conditions, gross margin fluctuations, and the impact of share repurchase/dividend programs on cash reserves[103][191][192][196] Unresolved Staff Comments There are no unresolved staff comments to report - No unresolved staff comments[197] Properties Logitech's headquarters are in Lausanne, Switzerland, with key offices in San Jose and Hsinchu, and owned manufacturing facilities in Suzhou, China, totaling approximately 720,000 square feet - Headquarters are in Lausanne, Switzerland, occupying approximately 50,500 square feet with a lease expiring July 2025[198] - Principal corporate offices in Lausanne, San Jose, and Hsinchu, Taiwan, comprise approximately 250,000 square feet of leased space[198] - Logitech owns manufacturing units and employee dormitories in Suzhou, China, totaling approximately 720,000 square feet[199] Legal Proceedings Logitech is involved in routine legal proceedings, which it intends to defend, and does not anticipate a material adverse effect on its financial condition or operations - Logitech is involved in claims and legal proceedings arising in the ordinary course of business[201] - The company does not believe pending matters will materially adversely affect its financial condition, cash flows, or results of operations[201] - Litigation carries inherent uncertainties, potentially leading to defense costs, diversion of management resources, or negative publicity[201] Mine Safety Disclosures This item is not applicable to Logitech International S.A - No mine safety disclosures are applicable[203] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Logitech's shares are dual-listed on SIX Swiss Exchange and Nasdaq, with an increased recommended dividend and an active share repurchase program, impacting stockholder returns - Logitech's shares are listed on both the SIX Swiss Exchange (LOGN) and the Nasdaq Global Select Market (LOGI)[206] Dividend Payments (per share) | Fiscal Year | Recommended/Paid Dividend (CHF) | USD Equivalent (approx.) | | :---------- | :------------------------------ | :----------------------- | | 2023 | 1.06 (recommended) | 1.16 | | 2022 | 0.96 (paid) | 0.98 | | 2021 | 0.87 (paid) | 0.95 | - The 2020 share repurchase program was increased to $1.5 billion, with $505.8 million remaining available as of March 31, 2023[213][214][314] Share Repurchases | Fiscal Year Ended | Shares Repurchased (thousands) | Weighted Average Price Per Share (USD) | | :---------------- | :----------------------------- | :------------------------------------- | | March 31, 2023 | 7,562 | 55.25 | | March 31, 2022 | 4,607 | 89.36 | | March 31, 2021 | 1,845 | 89.20 | Cumulative Total Stockholder Return (March 31, 2018 = $100) | Index | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | | :------------------------------------- | :--- | :--- | :--- | :--- | :--- | :--- | | Logitech | $100 | $109 | $121 | $298 | $212 | $171 | | Nasdaq Composite Index | $100 | $111 | $111 | $193 | $209 | $181 | | S&P 500 Information and Technology Index | $100 | $115 | $127 | $212 | $257 | $245 | Item 6. (Reserved) This item is reserved and contains no information - This item is reserved[221] Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes Logitech's FY23 financial performance, noting a 17% sales decrease, gross margin decline to 37.9%, reduced operating expenses, and a significant net income decrease, alongside macroeconomic impacts and liquidity Overview of Our Company Logitech designs and sells products for working, creating, gaming, and streaming, addressing four major market opportunities through international distribution networks - Logitech's mission is to help people pursue passions, designing products for working, creating, gaming, and streaming under brands like Logitech and Ultimate Ears[223] - The company targets four market opportunities: Creativity & Productivity, Gaming, Video Collaboration, and Music, selling through international direct and indirect channels[224] Impacts of Macroeconomic and Geopolitical Conditions on our Business Logitech's FY23 business was negatively impacted by inflation, foreign currency fluctuations, global economic slowdown, and geopolitical events like the war in Ukraine - In fiscal year 2023, Logitech's business was negatively impacted by inflation, foreign currency fluctuations, global economic slowdown, and lower consumer/enterprise spending[226] - The war in Ukraine exacerbated global supply chain, logistics, and inflationary challenges; Logitech ceased sales and shipments to Russia and halted sales in Ukraine in FY23[226] - These conditions adversely affected product demand and caused volatility in material costs and shipping rates[227] Trends and Uncertainties Logitech benefits from long-term trends like hybrid work and social gaming but faces near-term challenges from macroeconomic conditions and uncertain return-to-office strategies - Logitech benefits from long-term trends including hybrid work, video everywhere, social gaming, and digital content creation democratization[229][230] - Near-term challenges include macroeconomic factors (interest rates, inflation, foreign exchange), low consumer confidence, uncertain 'return-to-office' strategies, and B2B go-to-market development timing[231] - Mitigation strategies involve reducing operating expenses and inventories, continued investment in the B2B direct sales channel, and new product releases[232] Business Seasonality and Product Introductions Logitech's sales peak in the third fiscal quarter due to holiday demand, while new product introductions and acquisitions can significantly impact financial results and cash flow - Logitech typically sees higher sales in its third fiscal quarter (October to December) due to year-end holiday consumer demand and enterprise spending[233] - New product introductions and business acquisitions can significantly impact sales, product costs, and operating expenses[233] - Cash flow is generally lower in the first half of the fiscal year due to inventory build-up for Q3 and annual dividend payments[233] Summary of Financial Results Logitech's FY23 saw a 17% sales decrease to $4.54 billion, a gross margin decline to 37.9%, and a significant drop in net income, primarily due to lower demand and unfavorable currency rates - Total sales for fiscal year 2023 decreased 17% compared to fiscal year 2022, driven by lower demand and unfavorable currency exchange rates[234] - Sales decreased by 25% in EMEA, 17% in Americas, and 9% in Asia Pacific regions in FY23 compared to FY22[234] - Gross margin decreased by 340 basis points to 37.9% in FY23, primarily due to inflationary pressure and unfavorable currency exchange rates[235] - Operating expenses decreased to $1,261.0 million (27.8% of sales) in FY23 from $1,489.0 million (27.2% of sales) in FY22, mainly due to reduced marketing spend[236] - Net income for fiscal year 2023 was $364.6 million, down from $644.5 million in fiscal year 2022, reflecting lower sales and gross margin[237] Critical Accounting Estimates Logitech's critical accounting estimates include accruals for customer programs and product returns, inventory valuation, and accounting for income taxes, requiring significant management judgment - Critical accounting estimates include accruals for customer programs, product returns, inventory valuation, and income taxes[241] - Accruals for customer programs (cooperative marketing, incentives, pricing) and product returns require significant management judgment based on historical experience and market conditions[242][244][245] - Inventory valuation records inventories at the lower of cost and net realizable value, with write-downs for obsolete or excess inventory based on marketability and demand forecasts[247][248] - Accounting for income taxes uses the asset and liability method, requiring estimates and judgments on tax laws, uncertain tax positions, and deferred tax asset realizability[249][250] Adoption of New Accounting Pronouncements Logitech early adopted ASU 2021-08, 'Business Combinations,' effective April 1, 2022, which had no material impact on its financial statements - Logitech early adopted ASU 2021-08, 'Business Combinations,' effective April 1, 2022[471] - The adoption of ASU 2021-08 did not materially impact the company's consolidated financial statements[471] Inflation Reduction Act in the U.S. The U.S. Inflation Reduction Act, effective after December 31, 2022, is not expected to materially impact Logitech's financial statements - The Inflation Reduction Act (IRA), signed into U.S. law on August 16, 2022, establishes a new corporate alternative minimum tax effective after December 31, 2022[253] - Logitech does not expect the IRA to materially impact its financial statements upon effectiveness[253] Constant Currency Logitech defines 'constant currency' sales growth rates as those excluding the impact of currency exchange rate fluctuations, calculated by translating prior period sales at current rates - Logitech defines 'constant currency' sales growth rates as net sales growth excluding currency exchange rate fluctuations[254] - Constant currency sales growth is calculated by translating prior period local currency sales at the current period's average exchange rate[254] References to Sales Unless specified, 'Sales' refers to net sales, and sales growth discussions are presented in U.S. Dollars - The term 'Sales' refers to net sales, unless otherwise specified[256] - Sales growth discussions and percentages are in U.S. Dollars, unless otherwise specified[256] Results of Operations Logitech's FY23 net sales decreased 17% (or 13% in constant currency) due to lower demand and unfavorable exchange rates, impacting gross margin and operating expenses - Net sales in fiscal year 2023 decreased 17% (or 13% in constant currency) compared to fiscal year 2022, primarily due to lower demand and unfavorable currency exchange rates[258] Sales Growth Rate by Region (2023 vs. 2022) | Region | Sales Growth Rate | Sales Growth Rate in Constant Currency | | :----------- | :---------------- | :------------------------------------- | | Americas | (17)% | (17)% | | EMEA | (25)% | (17)% | | Asia Pacific | (9)% | (3)% | Sales by Product Categories (in thousands) | Product Category | 2023 ($) | 2022 ($) | Change (2023 vs. 2022) | | :------------------------- | :---------- | :---------- | :--------------------- | | Pointing Devices | 728,357 | 781,108 | (7)% | | Keyboards & Combos | 836,432 | 967,301 | (14)% | | PC Webcams | 227,692 | 403,651 | (44)% | | Tablet & Other Accessories | 254,374 | 310,123 | (18)% | | Gaming | 1,211,485 | 1,451,883 | (17)% | | Video Collaboration | 887,517 | 997,164 | (11)% | | Mobile Speakers | 111,649 | 149,782 | (25)% | | Audio & Wearables | 274,231 | 401,424 | (32)% | | Other | 7,081 | 18,665 | (62)% | | Total Sales | 4,538,818 | 5,481,101 | (17)% | - Gross margin decreased by 340 basis points to 37.9% in fiscal year 2023, primarily due to inflationary pressure and unfavorable currency exchange rates[275][276] Operating Expenses (in thousands) | Expense Category | 2023 ($) | % of Sales (2023) | 2022 ($) | % of Sales (2022) | | :------------------------------------------------------ | :---------- | :---------------- | :---------- | :---------------- | | Marketing and selling | 809,182 | 17.8% | 1,025,899 | 18.7% | | Research and development | 280,796 | 6.2% | 291,844 | 5.3% | | General and administrative | 124,652 | 2.7% | 148,648 | 2.7% | | Amortization of intangible assets and acquisition-related costs | 11,843 | 0.3% | 16,947 | 0.3% | | Impairment of intangible assets | — | N/A | 7,000 | 0.1% | | Change in fair value of contingent consideration for business acquisition | — | N/A | (3,509) | (0.1)% | | Restructuring charges, net | 34,573 | 0.8% | 2,165 | —% | | Total operating expenses | 1,261,046 | 27.8% | 1,488,994 | 27.2% | - Interest income increased to $18.3 million in FY23 from $1.2 million in FY22, primarily due to higher interest rates[290] - Other income (expense), net, resulted in a net expense of $13.3 million in FY23, compared to a net income of $0.6 million in FY22, driven by investment and currency exchange losses[292] Provision for Income Taxes | Metric | 2023 ($ in thousands) | 2022 ($ in thousands) | | :------------------------ | :-------------------- | :-------------------- | | Provision for income taxes | 98,947 | 131,305 | | Effective income tax rate | 21.3% | 16.9% | Liquidity and Capital Resources Logitech's cash and working capital decreased in FY23 due to share repurchases and dividends, but the company expects sufficient liquidity for the next 12 months, with significant contractual obligations - Cash and cash equivalents decreased to $1,149.0 million as of March 31, 2023, from $1,328.7 million as of March 31, 2022, primarily due to share repurchases and dividend payments[302][303] - Working capital decreased to $1,555.1 million as of March 31, 2023, from $1,651.8 million as of March 31, 2022, driven by lower inventories, cash, and accounts receivable[303] Selected Financial Information and Statistics | Metric | March 31, 2023 ($ in thousands) | March 31, 2022 ($ in thousands) | | :-------------------------------------- | :------------------------------ | :------------------------------ | | Accounts receivable, net | 630,382 | 675,604 | | Accounts payable | 406,968 | 636,306 | | Inventories | 682,893 | 933,124 | | Days sales in accounts receivable (DSO) | 59 days | 49 days | | Days accounts payable outstanding (DPO) | 59 days | 78 days | | Inventory turnover (ITO) | 3.6x | 3.2x | Consolidated Statement of Cash Flows Summary | Cash Flow Activity | Year ended March 31, 2023 ($ in thousands) | | :---------------------------------- | :----------------------------------------- | | Net cash provided by operating activities | 534,010 | | Net cash used in investing activities | (105,730) | | Net cash used in financing activities | (583,353) | | Net decrease in cash and cash equivalents | (179,693) | - Logitech expects sufficient liquidity for the next 12 months based on historical cash flow, future projections, and available cash balances[316] - Contractual obligations include $368.1 million in inventory purchase commitments, $26.3 million for capital expenditures, and a $46.6 million liability for excess/obsolete inventory[318][319][320] - Operating lease liabilities had a present value of $71.0 million as of March 31, 2023, with terms extending through 2033[321][573] Quantitative and Qualitative Disclosures About Market Risk Logitech faces market risks from currency exchange rates and interest rates, using derivative instruments like currency forward and swap contracts to hedge short-term exposures - Logitech faces market risk from adverse movements in currency exchange rates and interest rates due to its global operations[326] - Approximately 51% of FY23 sales were in non-U.S. denominated currencies, with 23% in Euro, making the company sensitive to U.S. Dollar strengthening[328] - The company uses currency forward and swap contracts to reduce short-term currency fluctuation effects on receivables, payables, and forecasted inventory purchases, typically maturing within one to four months[329][331][537][541] - A 10% adverse foreign currency exchange rate change would have resulted in an adverse effect on income before income taxes of approximately $17.0 million as of March 31, 2023, after hedging effects[330] Financial Statements This item refers to Logitech's consolidated financial statements and supplementary data, which are presented as a separate section of this Annual Report on Form 10-K - Logitech's financial statements and supplementary data are presented in a separate section of this Annual Report on Form 10-K[333] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure This item states that there are no changes in or disagreements with accountants on accounting and financial disclosure - Not applicable; there are no changes in or disagreements with accountants on accounting and financial disclosure[333] Controls and Procedures Logitech's CEO and CFO concluded that disclosure controls and internal control over financial reporting were effective as of March 31, 2023, with no material changes in Q4 FY23 - The CEO and CFO concluded that Logitech's disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2023[334] - Management concluded that internal control over financial reporting was effective as of March 31, 2023, based on the COSO Internal Control-Integrated Framework (2013)[336] - No material changes occurred in the company's internal control over financial reporting during the fourth quarter of fiscal year 2023[338] - The company acknowledges that internal controls provide reasonable, not absolute, assurance and are subject to inherent limitations[339] Other Information This item states that there is no other information to report - No other information to report[340] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item states that there are no disclosures regarding foreign jurisdictions that prevent inspections - No disclosures regarding foreign jurisdictions that prevent inspections[341] Part III Directors, Executive Officers and Corporate Governance Information on Logitech's executive officers, directors, and corporate governance, including the 'Logitech Code of Conduct,' is incorporated by reference from the 2023 Proxy Statement - Information regarding executive officers is incorporated by reference from Part I, Item 1[344] - Other information on directors and corporate governance is incorporated by reference from the definitive Proxy Statement for the 2023 Annual Meeting of Shareholders[344] - Logitech maintains a 'Logitech Code of Conduct' covering its board members, executive officers, and all other employees[345] Executive Compensation Information on executive compensation is incorporated by reference from the Proxy Statement for the 2023 Annual Meeting of Shareholders - Information for executive compensation is incorporated by reference from the Proxy Statement for the 2023 Annual Meeting of Shareholders[347] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership of certain beneficial owners and management, and related stockholder matters, is incorporated by reference from the Proxy Statement for the 2023 Annual Meeting of Shareholders - Information for security ownership of certain beneficial owners and management is incorporated by reference from the Proxy Statement for the 2023 Annual Meeting of Shareholders[348] Certain Relationships and Related Transactions, and Director Independence Information on certain relationships and related transactions, and director independence, is incorporated by reference from the Proxy Statement for the 2023 Annual Meeting of Shareholders - Information for certain relationships and related transactions, and director independence, is incorporated by reference from the Proxy Statement for the 2023 Annual Meeting of Shareholders[349] Principal Accountant Fees and Services Information on principal accountant fees and services is incorporated by reference from the Proxy Statement for the 2023 Annual Meeting of Shareholders - Information for principal accountant fees and services is incorporated by reference from the Proxy Statement for the 2023 Annual Meeting of Shareholders[350] Part IV Exhibits and Financial Statement Schedules This item lists financial statements, supplementary data, and exhibits, including the Independent Auditor's Report, consolidated statements, and corporate governance documents, filed as part of the Form 10-K - This item includes Financial Statements and Supplementary Data, Financial Statement Schedule, and Exhibits[353] - Financial statements include Consolidated Statements of Operations, Comprehensive Income, Balance Sheets, Cash Flows, and Changes in Shareholders' Equity[352] - Exhibits include corporate documents, stock plans, deferred compensation plans, employment agreements, and CEO/CFO certifications[355][356] Signatures The Annual Report on Form 10-K was signed by Logitech's President and CEO, CFO, Chairperson, and other Directors on May 17, 2023 - The report is signed by Bracken Darrell (President and CEO) and Charles Boynton (CFO) on May 17, 2023[361][365] - Signatures also include the Chairperson of the Board, Wendy Becker, and other Directors[365] INDEX TO CONSOLIDATED FINANCIAL STATEMENTS This section provides an index to the consolidated financial statements, including the Report of Independent Registered Public Accounting Firm, and the various consolidated statements and their accompanying notes - The index lists the Report of Independent Registered Public Accounting Firm, Consolidated Statements of Operations, Comprehensive Income, Balance Sheets, Cash Flows, Changes in Shareholders' Equity, and Notes[367] Report of Independent Registered Public Accounting Firm KPMG LLP issued unqualified opinions on Logitech's FY23/FY22 financial statements and internal control, highlighting critical audit matters regarding customer program breakage rates and accruals - KPMG LLP issued unqualified opinions on Logitech's consolidated financial statements for the three-year period ended March 31, 2023, and on internal control effectiveness as of March 31, 2023[370] - Critical audit matters included evaluating significant assumptions for Customer Program breakage rates, such as claim submission periods and historical claim experience relevance[379][380] - Another critical audit matter was assessing accruals for certain Customer Programs, specifically the relevance of historical experience in predicting earned amounts and validating channel inventory data[382][384] Consolidated Statements of Operations This statement presents Logitech's net sales, cost of goods sold, gross profit, operating expenses, operating income, interest income, other income (expense), income before income taxes, provision for income taxes, and net income for fiscal years 2023, 2022, and 2021, along with basic and diluted net income per share Consolidated Statements of Operations (in thousands, except per share amounts) | Metric | FY2023 | FY2022 | FY2021 | | :-------------------------------------------- | :---------- | :---------- | :---------- | | Net sales | 4,538,818 | 5,481,101 | 5,252,279 | | Cost of goods sold | 2,806,438 | 3,204,072 | 2,903,215 | | Amortization of intangible assets (COGS) | 12,865 | 14,023 | 13,329 | | Gross profit | 1,719,515 | 2,263,006 | 2,335,735 | | Total operating expenses | 1,261,046 | 1,488,994 | 1,187,610 | | Operating income | 458,469 | 774,012 | 1,148,125 | | Interest income | 18,331 | 1,246 | 1,784 | | Other income (expense), net | (13,278) | 560 | (1,789) | | Income before income taxes | 463,522 | 775,818 | 1,148,120 | | Provision for income taxes | 98,947 | 131,305 | 200,863 | | Net income | 364,575 | 644,513 | 947,257 | | Basic Net income per share | 2.25 | 3.85 | 5.62 | | Diluted Net income per share | 2.23 | 3.78 | 5.51 | Consolidated Statements of Comprehensive Income This statement details Logitech's net income and other comprehensive income (loss) components, including currency translation adjustments, defined benefit plan adjustments, and hedging gains/losses, for fiscal years 2023, 2022, and 2021 Consolidated Statements of Comprehensive Income (in thousands) | Metric | FY2023 | FY2022 | FY2021 | | :------------------------------------------------------------------ | :-------- | :--------- | :-------- | | Net income | 364,575 | 644,513 | 947,257 | | Other comprehensive income (loss): | | | | | Currency translation gain (loss), net of taxes | 1,373 | (14,051) | 12,695 | | Reclassification of cumulative translation adjustments | 219 | 1,051 | (1,738) | | Defined benefit plans: Net gain (loss) and prior service costs, net of taxes | 16,089 | 22,328 | (4,701) | | Reclassification of amortization included in other income (expense), net | (8,069) | (2,623) | 1,517 | | Hedging gain (loss): Deferred hedging gain (loss), net of taxes | 2,625 | 6,308 | (4,071) | | Reclassification of hedging loss (gain) included in cost of goods sold | (8,391) | (8,221) | 8,043 | | Total other comprehensive income | 3,846 | 4,792 | 11,745 | | Total comprehensive income | 368,421 | 649,305 | 959,002 | Consolidated Balance Sheets This statement presents Logitech's assets, liabilities, and shareholders' equity, showing total assets decreased from $4.04 billion to $3.56 billion as of March 31, 2023, driven by current asset reductions Consolidated Balance Sheets (in thousands) | Metric | March 31, 2023 | March 31, 2022 | | :-------------------------------- | :------------- | :------------- | | Assets: | | | | Cash and cash equivalents | 1,149,023 | 1,328,716 | | Accounts receivable, net | 630,382 | 675,604 | | Inventories | 682,893 | 933,124 | | Total current assets | 2,605,174 | 3,072,922 | | Property, plant and equipment, net | 121,503 | 109,807 | | Goodwill | 454,610 | 448,175 | | Other intangible assets, net | 63,173 | 83,779 | | Total assets | 3,560,753 | 4,035,405 | | Liabilities: | | | | Accounts payable | 406,968 | 636,306 | | Accrued and other current liabilities | 643,139 | 784,848 | | Total current liabilities | 1,050,107 | 1,421,154 | | Total liabilities | 1,303,193 | 1,636,667 | | Shareholders' Equity: | | | | Total shareholders' equity | 2,257,560 | 2,398,738 | Consolidated Statements of Cash Flows This statement details Logitech's cash flows, showing net cash from operating activities increased to $534.0 million in FY23, but overall cash and cash equivalents decreased by $179.7 million due to investing and financing activities Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | FY2023 | FY2022 | FY2021 | | :------------------------------------------ | :---------- | :---------- | :---------- | | Net cash provided by operating activities | 534,010 | 298,318 | 1,458,638 | | Net cash used in investing activities | (105,730) | (107,863) | (119,982) | | Net cash used in financing activities | (583,353) | (606,819) | (299,929) | | Effect of exchange rate changes on cash | (24,620) | (5,247) | (3,966) | | Net (decrease) increase in cash and cash equivalents | (179,693) | (421,611) | 1,034,761 | | Cash and cash equivalents at end of the period | 1,149,023 | 1,328,716 | 1,750,327 | - Net cash provided by operating activities in FY23 was $534.0 million, driven by net income, non-cash expenses, and favorable changes in accounts receivable and inventories[308] - Net cash used in investing activities in FY23 was $105.7 million, primarily for purchases of property, plant, and equipment[309] - Net cash used in financing activities in FY23 was $583.4 million, mainly due to share repurchases and cash dividend payments[310] Consolidated Statements of Changes in Shareholders' Equity This statement details changes in Logitech's shareholders' equity for FY21-FY23, including registered shares, paid-in capital, treasury shares, retained earnings, and comprehensive loss, highlighting impacts from share repurchases and dividends Consolidated Statements of Changes in Shareholders' Equity (in thousands) | Metric | March 31, 2023 | March 31, 2022 | March 31, 2021 | | :-------------------------------------- | :------------- | :------------- | :------------- | | Registered shares (Amount) | 30,148 | 30,148 | 30,148 | | Additional paid-in capital | 127,380 | 129,925 | 129,519 | | Treasury shares (Amount) | (977,266) | (632,893) | (279,541) | | Retained earnings | 3,177,575 | 2,975,681 | 2,490,578 | | Accumulated other comprehensive loss | (100,277) | (104,123) | (108,915) | | Total shareholders' equity | 2,257,560 | 2,398,738 | 2,261,789 | - Purchases of registered shares totaled $418.3 million in FY23, $412.0 million in FY22, and $165.0 million in FY21[402] - Cash dividends paid were $162.7 million in FY23, $159.4 million in FY22, and $146.7 million in FY21[402] Notes to Consolidated Financial Statements These notes provide detailed disclosures and explanations for consolidated financial statements, covering significant accounting policies, critical estimates, and specific financial line items, offering insights into operations and financial health Note 1—The Company Logitech International S.A. is a Swiss holding company, founded in 1981, that designs, manufactures, and sells products for various digital platforms globally - Logitech International S.A. is a Swiss holding company, founded in 1981, headquartered in Lausanne, Switzerland[406] - The company designs, manufactures, and sells products for businesses and consumers across digital platforms, with shares listed on SIX Swiss Exchange and Nasdaq Global Select Market[405][406] Note 2—Summary of Significant Accounting Policies Logitech's consolidated financial statements adhere to U.S. GAAP, relying on significant estimates for goodwill, inventory, and revenue recognition, and early adopted ASU 2021-08 with no material impact - Consolidated financial statements are prepared under U.S. GAAP, with the fiscal year ending on March 31[407][408] - Significant estimates and judgments are made for goodwill, intangible assets, inventory valuation, share-based compensation, and uncertain tax positions[410] - Revenue is recognized when customers obtain control of goods or services, typically upon shipment, with variable consideration like product returns and customer programs estimated as a revenue reduction[415][416][420][424][427] - Inventories are valued at the lower of cost and net realizable value, with write-downs for obsolete or excess inventory based on marketability and demand forecasts[443] - Goodwill and indefinite-lived intangible assets are evaluated for impairment annually on December 31 or more frequently if impairment indicators exist[452] - Logitech early adopted ASU 2021-08, 'Business Combinations,' effective April 1, 2022, with no material impact on financial statements[471] Note 3—Net Income Per Share This note details the computation of basic and diluted net income per share for fiscal years 2023, 2022, and 2021, including the impact of potentially dilutive share equivalents Net Income Per Share Computation (in thousands, except per share amounts) | Metric | FY2023 | FY2022 | FY2021 | | :-------------------------------------------- | :-------- | :-------- | :-------- | | Net income | 364,575 | 644,513 | 947,257 | | Weighted average shares outstanding - basic | 162,302 | 167,447 | 168,523 | | Effect of potentially dilutive equivalent shares | 1,402 | 2,967 | 3,252 | | Weighted average shares outstanding - diluted | 163,704 | 170,414 | 171,775 | | Basic Net income per share | $2.25 | $3.85 | $5.62 | | Diluted Net income per share | $2.23 | $3.78 | $5.51 | - Share equivalents totaling 2.0 million (FY23), 2.0 million (FY22), and 0.1 million (FY21) were excluded from diluted EPS due to their anti-dilutive effect[472] Note 4—Employee Stock-Based Compensation Logitech offers various employee stock-based compensation plans, including ESPPs, stock options, RSUs, and PSUs, with significant future compensation costs to be recognized - Logitech offers employee stock purchase plans (1996 ESPP, 2006 ESPP) and the 2006 Stock Incentive Plan for stock options, service-based RSUs, and market/performance-based PSUs[474][475][476][478][479] Share-Based Compensation Expense (in thousands) | Expense Category | FY2023 | FY2022 | FY2021 | | :---------------------------- | :------ | :------ | :------ | | Cost of goods sold | 5,635 | 6,695 | 6,438 | | Marketing and selling | 34,707 | 37,796 | 36,788 | | Research and development | 15,292 | 18,356 | 14,179 | | General and administrative | 15,148 | 30,632 | 28,614 | | Total share-based compensation expense | 70,782 | 93,479 | 86,019 | | Income tax benefit | (9,750) | (26,987) | (19,472) | | Total share-based compensation expense, net of income tax benefit | 61,032 | 66,492 | 66,547 | - As of March 31, 2023, $125.2 million of future stock-based compensation cost is to be recognized over a weighted-average period of 2.4 years[481] - Outstanding stock options totaled 1.12 million shares with a weighted average exercise price of $66 as of March 31, 2023[485] - Outstanding RSUs and PSUs totaled 3.46 million shares with a weighted average grant date fair value of $66 as of March 31, 2023[486] Note 5—Employee Benefit Plans Logitech sponsors defined benefit pension plans and other post-employment benefits, with an improved underfunded status of $32.7 million in FY23, and also offers defined contribution and deferred compensation plans - Logitech sponsors defined benefit pension plans and non-retirement post-employment benefits, with an underfunded status of $32.7 million as of March 31, 2023, an improvement from $51.4 million in 2022[489][496] - The improvement in defined benefit plan underfunded status was primarily due to an increase in the discount rate[493] Net Periodic Benefit Cost (in thousands) | Component | FY2023 | FY2022 | FY2021 | | :---------------------------- | :------ | :------ | :------ | | Service costs | 13,195 | 14,693 | 12,121 | | Interest costs | 2,408 | 920 | 1,047 | | Expected return on plan assets | (3,754) | (2,930) | (2,535) | | Total net periodic benefit cost | 3,780 | 10,060 | 12,310 | - The company expects to contribute $9.4 million to its defined benefit pension plans during fiscal year 2024[500] - Defined contribution plan expenses were $14.4 million in FY23, $13.9 million in FY22, and $10.6 million in FY21[500] - The deferred compensation plan's assets and liabilities totaled $28.2 million as of March 31, 2023[502] Note 6—Other Income (Expense), net Logitech reported a net expense of $13.3 million in FY23, primarily due to decreased investment income, increased currency exchange losses, and investment impairments Other Income (Expense), net (in thousands) | Component | FY2023 | FY2022 | FY2021 | | :-------------------------------------------------------- | :-------- | :------ | :-------- | | Investment (loss) gain related to the deferred compensation plan | (1,961) | 1,231 | 5,916 | | Currency exchange loss, net | (7,337) | (4,604) | (2,688) | | Loss on investments, net | (14,073) | (1,683) | (5,910) | | Non-service cost net pension income (expense) and other | 10,093 | 5,616 | 893 | | Total Other income (expense), net | (13,278) | 560 | (1,789) | - The net expense in FY23 was primarily due to decreased investment income from the deferred compensation plan, increased currency exchange losses (Brazilian Real, Australian Dollar), and an investment impairment loss[292][293][294] - Non-service cost net pension income increased in FY23 due to a curtailment gain from restructuring actions[295] Note 7—Income Taxes Logitech's effective income tax rate increased to 21.3% in FY23 due to income mix across jurisdictions, with significant unrecognized tax benefits and carryforwards Income Before Income Taxes (in thousands) | Region | FY2023 | FY2022 | FY2021 | | :-------- | :-------- | :-------- | :-------- | | Swiss | 282,970 | 579,258 | 984,185 | | Non-Swiss | 180,552 | 196,560 | 163,935 | | Total | 463,522 | 775,818 | 1,148,120 | Provision for Income Taxes (in thousands) | Component | FY2023 | FY2022 | FY2021 | | :-------- | :------ | :------ | :------ | | Current: | | | | | Swiss | 19,405 | 59,659 | 121,199 | | Non-Swiss | 48,829 | 44,094 | 45,056 | | Deferred: | | | | | Swiss | 26,629 | 29,198 | 31,558 | | Non-Swiss | 4,085 | (1,646) | 3,050 | | Total | 98,947 | 131,305 | 200,863 | - The effective income tax rate was 21.3% in FY23, up from 16.9% in FY22, primarily due to the mix of income and losses across tax jurisdictions[296][505] - Total unrecognized tax benefits from uncertain tax positions were $186.8 million as of March 31, 2023, up from $176.0 million in 2022[298][512] - Non-current income taxes payable for uncertain tax positions totaled $106.4 million as of March 31, 2023[299][513] - Logitech had net operating loss carryforwards of $17.7 million in Switzerland and $60.2 million in the U.S., plus tax credit carryforwards of $74.6 million in the U.S. as of March 31, 2023[509] Note 8—Balance Sheet Components This note details Logitech's balance sheet components, including accounts receivable, inventories, and accrued liabilities, with specific allowances for customer programs and sales returns Accounts Receivable, net (in thousands) | Component | March 31, 2023 | March 31, 2022 | | :---------------------------------------- | :------------- | :------------- | | Accounts receivable | 851,576 | 964,766 | | Allowance for doubtful accounts | (86) | (2,212) | | Allowance for sales returns | (10,146) | (12,321) | | Allowance for cooperative marketing arrangements | (40,495) | (56,372) | | Allowance for customer incentive programs | (71,645) | (97,460) | | Allowance for pricing programs | (98,822) | (120,797) | | Total Accounts receivable, net | 630,382 | 675,604 | Inventories (in thousands) | Component | March 31, 2023 | March 31, 2022 | | :------------- | :------------- | :------------- | | Raw materials | 171,790 | 226,155 | | Finished goods | 511,103 | 706,969 | | Total Inventories | 682,893 | 933,124 | Accrued and Other Current Liabilities (in thousands) | Component | March 31, 2023 | March 31, 2022 | | :---------------------------------------- | :------------- | :------------- | | Accrued customer marketing, pricing and incentive programs | 206,546 | 232,393 | | Accrued personnel expenses | 103,592 | 165,090 | | Accrued sales return liability | 49,462 | 40,507 | | Accrued loss for inventory purchase commitments | 46,608 | 46,361 | | VAT payable | 33,328 | 39,602 | | Warranty liabilities | 28,861 | 32,987 | | Income taxes payable | 18,788 | 35,355 | | Operating lease liabilities | 12,655 | 13,690 | | Contingent consideration | 6,629 | 8,042 | | Other current liabilities | 136,670 | 170,821 | | Total Accrued and other current liabilities | 643,139 | 784,848 | Note 9—Fair Value Measurements Logitech categorizes financial assets and liabilities into a three-level fair value hierarchy, with contingent consideration decreasing and deferred compensation plan investments valued at $28.2 million - Logitech categorizes financial assets and liabilities into a three-level fair value hierarchy based on input observability[522] - Contingent consideration for business acquisitions decreased to $6.6 million as of March 31, 2023, from $12.3 million in 2022, with $4.0 million paid in FY23[524] - Investments for the deferred compensation pla