EXHIBIT 13
[DIGI CONNECTION(TM)]
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TO OUR STOCKHOLDERS,
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[PHOTO]
Fiscal 2002 was a challenging year for the entire networking communications
industry. However, despite the market turbulence, we focused on five areas we
believe can position Digi as a strong company when we see an economic updraft:
o Divestiture and acquisition;
o New product introduction;
o Improved share position;
o Improved efficiency;
o Continued to maintain a strong balance sheet.
We feel we made good progress in all of these areas over the past year.
Divestiture and acquisition were strategic areas where we set our most
aggressive goals in fiscal 2002. Digi further focused its Connectware strategy
by divesting its DataFire(R) and MiLAN Technology product lines and by acquiring
NetSilicon, a leading provider of Ethernet microprocessor solutions for
intelligent networked devices.
Digi sold the unprofitable high density DataFire Remote Access Server (RAS)
product and retained the profitable products, which allowed us to achieve
profitability with the remaining products in the RAS product line in 2002. MiLAN
was a low margin, unprofitable business that did not fit the core Digi
Connectware strategy, so we were very pleased to successfully sell that business
for cash. NetSilicon is a very good fit with the Digi Connectware strategy of
supplying our targeted vertical markets with products that make it easy to
connect devices to networks. NetSilicon's embedded Ethernet microprocessor based
products are the next generation solution for native connection of devices to
networks. Digi is already beginning to realize the financial benefits of these
transactions since gross margins increased from 49 percent in fiscal 2001 to 55
percent in fiscal 2002, primarily a result of improved operating efficiency, the
divestiture of MiLAN, and the acquisition of NetSilicon.
In 2002, Digi placed a high priority on striving to become a more innovative
company with more highly differentiated products. Digi introduced the industry's
first Universal Serial Bus (USB) over Internet Protocol (IP) concentrator called
AnywhereUSB(TM) which allows USB-enabled devices to be connected anywhere on a
wired or wireless Local Area Network (LAN). In fact, AnywhereUSB(TM) was one of
the three finalists for PC Magazine's 2002 Award for Technical Excellence in the
Networking category. We expect this product to give us a significant
time-to-market advantage over our competitors. Digi also introduced the Digi One
IA RealPort(TM), a product that can network enable virtually any serial device
in the industrial automation environment, and was acknowledged by Veritest to be
significantly better than competing products by generating the lowest latency of
all products tested. Additionally, Digi launched the
WatchPort USB Camera and the WatchPort Sensor Series, which allow customers to
implement low cost surveillance systems. Both of these products were finalists
for the "Best of Comdex" Awards in 2002. The WatchPort USB Camera also plays
well in point-of-sale and kiosk applications when used in conjunction with the
core USB connectivity product line. Finally, Digi launched its PortServer(R)
CM(TM) product line, which enables data center managers and system
administrators to connect to and efficiently monitor and control Information
Technology (IT) equipment through the console port. Digi has met the competitive
challenge on this product with its enhanced security, high port density, and
ability to provide alerts to the network administrator.
In addition to addressing market expansion, we felt it was very important to
focus on gaining share relative to our competitors in 2002. We monitor our share
position diligently on a weekly basis in the United States. In fiscal 2002, we
believe that we either maintained or improved our share position in all of the
growth markets we address. We also believe that we have maintained our strong
leadership position in the mature Async business.
Throughout 2002, Digi exerted significant energy on improving the efficiency of
our key strategic processes. We have a set of Key Performance Indicators (KPI)
that each department head publishes internally on a monthly basis. These KPIs
measure the progress against goals in our top priority company processes. Each
department head is accountable for continuous improvement to meet or exceed the
established goals. It is this KPI effort that has enabled us to nimbly and
intelligently reduce the expense burden while continuing to improve performance
against our key metrics. Compared to fiscal 2002, we expect the expense run rate
reduction in fiscal 2003 will be in excess of $10 million.
Digi continued to maintain a strong balance sheet throughout the year. Despite a
net cash expenditure of $10.4 million on the NetSilicon acquisition, which was
partially offset by the inflow of $8.1 million from the MiLAN divesture, we
finished the year at a higher position in cash and marketable securities than we
started, $58 million versus $56 million, respectively. Digi reduced its Days
Sales Outstanding (DSO) from 57 days to 33 days. Receivables decreased from
$16.1 million to $10.5 million, a reduction of $5.6 million. Inventory was
reduced from $16.8 million to $12.5 million, a reduction of $4.3 million. With
the reduced expense burden and strong balance sheet, Digi has strong operating
leverage entering fiscal 2003.
Over the past three years, we have executed on a plan to leverage the strong
Digi brand into key vertical markets such as point-of-sale and industrial
automation. Our strategy has been to develop or acquire Connectware growth
products and technologies that also play into these verticals. In 2003, we are
extending this strategy by driving the marketing strategy and message "making
device networking easy". We believe that this is a key, differentiating value
proposition that Digi provides today, and it will become a mantra throughout the
organization that will provide more value to our customers in the future. It
embraces all of our products from Async, to Device Servers, to Terminal Servers,
to USB, to NetSilicon embedded networking. Our marketing message, our product
strategy, our engineering strategy, our technical support strategy, and our
sales strategy will all embrace "making device networking easy" at the core.
In summary, we are now focused on our Connectware strategy with a business that
has a very healthy and vibrant culture. The team at Digi is very excited to take
on the challenges that face us in 2003.
02
/s/ XXXXXX X. XXXXXXXX
Xxxxxx X. Xxxxxxxx
Chairman, President and Chief Executive Officer
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STOCKHOLDER AND INVESTOR INFORMATION
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STOCK LISTING
The Company's Common Stock trades on the Nasdaq National Market tier of the
Nasdaq Stock Market(SM) under the symbol "DGII." On December 6, 2002, the number
of holders of the Company's Common Stock was approximately 8,875 consisting of
325 record holders and approximately 8,550 stockholders whose stock is held by a
bank, broker or other nominee.
High and low sale prices for each quarter during the years ended September 30,
2002 and 2001, as reported on the Nasdaq Stock Market, were as follows:
STOCK PRICES
2002 first second third fourth
High $ 6.50 $ 7.15 $ 5.95 $ 3.40
Low $ 3.60 $ 5.15 $ 3.18 $ 1.88
2001 first second third fourth
High $ 9.25 $ 8.12 $10.40 $ 9.50
Low $ 5.38 $ 5.41 $ 4.50 $ 4.70
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock. The Board of
Directors presently intends to retain all earnings for use in the Company's
business and does not anticipate paying cash dividends in the foreseeable
future.
The Company does not have a Dividend Reinvestment Plan or a Direct Stock
Purchase Plan.
STOCKHOLDER INFORMATION
Transfer Agent and Registrar
Xxxxx Fargo Bank Minnesota, X.X.
Xxxxx Fargo Shareowners Services
X.X. Xxx 00000
Xx. Xxxx, XX 00000-0000
000-000-0000
000-000-0000
Legal Counsel
Faegre & Xxxxxx LLP
0000 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000-0000
Independent Public Accountants
PricewaterhouseCoopers LLP
000 Xxxxx Xxxxxx Xxxxx
Xxxxxxxxxxx, XX 00000-0000
Annual Meeting
The Company's Annual Meeting of Stockholders will be held on Wednesday, January
22, 2003, at 3:30 p.m., at the Marriott Southwest, 0000 Xxxx Xxxxxxx,
Xxxxxxxxxx, Xxxxxxxxx.
Investor Relations
A copy of the Company's Form 10-K, filed with the Securities
and Exchange Commission, is available free upon request.
Contact:
Investor Relations Administrator
Digi International Inc.
00000 Xxxx Xxxx Xxxx
Xxxxxxxxxx, XX 00000
or call 000-000-XXXX
e-mail request to: xx@xxxx.xxx
xxx.xxxx.xxx
DIGI INTERNATIONAL INC. DIGI INTERNATIONAL (UK) LTD
00000 Xxxx Xxxx East Ashwood House, Almondsbury
Xxxxxxxxxx, XX 00000 Business Center Woodlands
PH: 1-877-912-3444 Xxxxxxx Stoke, Bristol
1-952-912-3444 XX00 0XX
FX: 0-000-000-0000 PH x00(0)0000-000000
E-mail: xxxx@xxxx.xxx
DIGI INTERNATIONAL
DIGI INTERNATIONAL GMBH
2 xxx xx X'Xxxxxx
Xxxxxx-xxx-Xxxxxxxxxx Xxx. 00 92200 Xxxxxxx xxx Xxxxx, Xxxxxx XX
X-00000 Xxxxxxxx Xxxxxxx x00-0-00-00-00-00
PH: x00-000-0000-0
INSIDE OUT NETWORKS
DIGI INTERNATIONAL
(HK) LIMITED 0000 Xxx Xxxxx Xxxx
Xxxx. 0, Xxx. 000
Xxxxx 0000-00, 11/F Austin, TX 78746
K Wah Centre PH: 0-000-000-0000
000 Xxxx Xxxx
Xxxxx Xxxxx, Xxxx Xxxx NETSILICON
PH: x000-0000-0000
000 Xxxxxxx Xxxx Xxxx #000
XXXX XXXXXXXXXXXXX Xxxxxxx, XX 00000
PH: 0-000-000-0000
Xxxx 000-0 0-000-000-0000
Xxxxxxxx Xxxxxxxxxxxxx
Xxxxxxxx, Xx. 0 XXXXXXXXXX XXXXX
Yong An Xxxx Xx, Xxxx Xxx
Men Xxx NES Xxxx. Xxxxx 0X 00-00
Xxxx Xxxx Xxxxxxxx, Xxxxxxx Xxxxxxxxxxx-xxx
XX x00-00-0000-0000/31/32 Xxxxxxx-xx, Xxxxx, 000-0000
Xxxxx
DIGI INTERNATIONAL PH: x00-0-0000-0000
XXXXXXX
Xxxxxxxxxxx, 00X, 1.9.8 XX-0000
Xxxxxxxxxx, Xxxxxxx PH
x00-00-00-00-00
DIGI INTERNATIONAL X.X.
Xxxxxxxxxxxxx 00-00
0000 XX Xxxxxxxxx
Xxxxxxxxxxx
PH x00-00-0000-000
[DIGI CONNECTWARE(TM)]
MAKING DEVICE NETWORKING EASY
