Note 4 — Employee Benefit Plans
Employee Share Purchase Plans and Stock Incentive Plans
As of September 30, 2011, the Company offers the 2006 ESPP (2006 Employee Share Purchase Plan (Non-U.S.)), the 1996 ESPP (1996 Employee Share Purchase Plan (U.S.)) and the 2006 Stock Incentive Plan. Shares issued to employees as a result of purchases or exercises under these plans are generally issued from shares held in treasury.
The following table summarizes the share-based compensation expense and related tax benefit recognized for the three and six months ended September 30, 2011 and 2010 (in thousands):
|
|
Three months ended |
|
Six months ended |
|
|
|
September 30, |
|
September 30, |
|
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
$ |
950 |
|
$ |
919 |
|
$ |
2,110 |
|
$ |
1,910 |
|
Share-based compensation expense included in gross profit |
|
950 |
|
919 |
|
2,110 |
|
1,910 |
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
Marketing and selling |
|
3,448 |
|
3,091 |
|
6,965 |
|
6,168 |
|
Research and development |
|
1,754 |
|
1,776 |
|
3,562 |
|
3,552 |
|
General and administrative |
|
586 |
|
2,472 |
|
3,816 |
|
5,090 |
|
Share-based compensation expense included in operating expenses |
|
5,788 |
|
7,339 |
|
14,343 |
|
14,810 |
|
Total share-based compensation expense |
|
6,738 |
|
8,258 |
|
16,453 |
|
16,720 |
|
Income tax benefit |
|
(2,276 |
) |
(2,442 |
) |
(4,665 |
) |
(4,337 |
) |
Share-based compensation expense, net of income tax |
|
$ |
4,462 |
|
$ |
5,816 |
|
$ |
11,788 |
|
$ |
12,383 |
|
As of September 30, 2011 and 2010, $0.9 million and $0.9 million of share-based compensation cost was capitalized to inventory. The following table summarizes total share-based compensation cost not yet recognized and the number of months over which such cost is expected to be recognized, on a weighted-average basis by type of grant (in thousands, except number of months):
|
|
September 30, 2011 |
|
|
|
Compensation |
|
Months of |
|
|
|
Cost Not Yet |
|
Future |
|
|
|
Recognized |
|
Recognition |
|
|
|
|
|
|
|
Non-vested stock options |
|
$ |
14,926 |
|
22 |
|
Time-based RSUs |
|
25,931 |
|
36 |
|
Performance-based RSUs |
|
10,289 |
|
27 |
|
Total compensation cost not yet recognized |
|
$ |
51,146 |
|
|
|
A summary of the Company’s stock option activity for the three and six months ended September 30, 2011 and 2010 is as follows (in thousands, except per share data; exercise prices are weighted averages):
|
|
Three Months Ended |
|
Six Months Ended |
|
|
|
September 30, |
|
September 30, |
|
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
|
|
|
|
Exercise |
|
|
|
Exercise |
|
|
|
Exercise |
|
|
|
Exercise |
|
|
|
Number |
|
Price |
|
Number |
|
Price |
|
Number |
|
Price |
|
Number |
|
Price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, beginning of period |
|
15,639 |
|
$ |
20 |
|
19,239 |
|
$ |
18 |
|
16,312 |
|
$ |
19 |
|
20,037 |
|
$ |
18 |
|
Granted |
|
— |
|
$ |
— |
|
68 |
|
$ |
15 |
|
— |
|
$ |
— |
|
254 |
|
$ |
15 |
|
Exercised |
|
(211 |
) |
$ |
8 |
|
(475 |
) |
$ |
9 |
|
(285 |
) |
$ |
8 |
|
(1,008 |
) |
$ |
9 |
|
Cancelled or expired |
|
(940 |
) |
$ |
18 |
|
(290 |
) |
$ |
22 |
|
(1,539 |
) |
$ |
20 |
|
(741 |
) |
$ |
22 |
|
Options outstanding, end of period |
|
14,488 |
|
$ |
20 |
|
18,542 |
|
$ |
18 |
|
14,488 |
|
$ |
20 |
|
18,542 |
|
$ |
18 |
|
Options exercisable, end of period |
|
10,807 |
|
$ |
20 |
|
11,571 |
|
$ |
18 |
|
10,807 |
|
$ |
20 |
|
11,571 |
|
$ |
18 |
|
The total pretax intrinsic value of options exercised during the three months ended September 30, 2011 and 2010 was $0.4 million and $3.2 million and the tax benefit realized for the tax deduction from options exercised during those periods was $0.1 million and $1.1 million. The total pretax intrinsic value of options exercised during the six months ended September 30, 2011 and 2010 was $0.7 million and $6.7 million and the tax benefit realized for the tax deduction from options exercised during those periods was $0.2 million and $1.9 million. The total fair value of options vested as of September 30, 2011 and 2010 was $72.4 million and $72.9 million.
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. There were no stock options granted in the three and six months ended September 30, 2011.
|
|
Three Months Ended |
|
Six Months Ended |
|
|
|
September 30, |
|
September 30, |
|
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
|
|
Purchase Plans |
|
Stock Options |
|
Purchase Plans |
|
Stock Options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend yield |
|
0 |
% |
0 |
% |
n/a |
|
0 |
% |
0 |
% |
0 |
% |
n/a |
|
0 |
% |
Expected life |
|
6 months |
|
6 months |
|
n/a |
|
4.0 years |
|
6 months |
|
6 months |
|
n/a |
|
4.0 years |
|
Expected volatility |
|
40 |
% |
36 |
% |
n/a |
|
48 |
% |
40 |
% |
36 |
% |
n/a |
|
48 |
% |
Risk-free interest rate |
|
0.17 |
% |
0.17 |
% |
n/a |
|
1.16 |
% |
0.17 |
% |
0.17 |
% |
n/a |
|
1.63 |
% |
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 the options or purchase offerings. The Company considers historical share price volatility as most representative of future 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.
The Company estimates option forfeitures at the time of grant and revises 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.
The following table presents the weighted average grant-date fair values of options granted and the expected forfeiture rates. There were no stock options granted in the three and six months ended September 30, 2011.
|
|
Three Months Ended |
|
Six Months Ended |
|
|
|
September 30, |
|
September 30, |
|
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
|
|
Purchase Plans |
|
Stock Options |
|
Purchase Plans |
|
Stock Options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average grant-date fair value of options granted |
|
$ |
3.20 |
|
$ |
3.96 |
|
n/a |
|
$ |
5.92 |
|
$ |
3.20 |
|
$ |
3.96 |
|
n/a |
|
$ |
5.85 |
|
Expected forfeitures |
|
0 |
% |
0 |
% |
n/a |
|
9 |
% |
0 |
% |
0 |
% |
n/a |
|
9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of the Company’s time- and performance-based RSU activity for the three and six months ended September 30, 2011 and 2010 is as follows (in thousands, except per share values; grant-date fair values are weighted averages):
|
|
Three Months Ended |
|
Six Months Ended |
|
|
|
September 30, |
|
September 30, |
|
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
|
|
|
|
Grant Date |
|
|
|
Grant Date |
|
|
|
Grant Date |
|
|
|
Grant Date |
|
|
|
Number |
|
Fair Value |
|
Number |
|
Fair Value |
|
Number |
|
Fair Value |
|
Number |
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs outstanding, beginning of period |
|
2,879 |
|
$ |
20 |
|
430 |
|
$ |
18 |
|
2,370 |
|
$ |
21 |
|
514 |
|
$ |
17 |
|
Granted |
|
419 |
|
$ |
9 |
|
75 |
|
$ |
16 |
|
1,133 |
|
$ |
12 |
|
75 |
|
$ |
16 |
|
Vested |
|
(66 |
) |
$ |
16 |
|
(41 |
) |
$ |
16 |
|
(116 |
) |
$ |
15 |
|
(119 |
) |
$ |
14 |
|
Cancelled or expired |
|
(533 |
) |
$ |
20 |
|
(85 |
) |
$ |
28 |
|
(688 |
) |
$ |
20 |
|
(91 |
) |
$ |
27 |
|
RSUs outstanding, end of period |
|
2,699 |
|
$ |
18 |
|
379 |
|
$ |
15 |
|
2,699 |
|
$ |
18 |
|
379 |
|
$ |
15 |
|
The total fair value of RSUs vested during the three months ended September 30, 2011 and 2010 was $1.3 million and $0.7 million. The tax benefit realized for the tax deduction from RSUs vested during the three months ended September 30, 2011 was $0.01 million. The tax benefit realized for the three months ended September 30, 2010 was immaterial. The total fair value of RSUs vested during the six months ended September 30, 2011 and 2010 was $1.7 million and $1.6 million and the tax benefit realized for the tax deduction from RSUs vested during these periods was $0.2 million and $0.2 million.
The Company determines the fair value of time-based RSUs based on the share market price on the date of grant. The fair value of performance-based RSUs is estimated using the Monte-Carlo simulation method applying the following assumptions:
|
|
FY 2012 |
|
FY 2011 |
|
FY 2010 |
|
FY 2009 |
|
|
|
Grants |
|
Grants |
|
Grants |
|
Grants |
|
|
|
|
|
|
|
|
|
|
|
Dividend yield |
|
0 |
% |
0 |
% |
0 |
% |
0 |
% |
Expected life |
|
3 years |
|
3 years |
|
2 years |
|
2 years |
|
Expected volatility |
|
51 |
% |
51 |
% |
58 |
% |
41 |
% |
Risk-free interest rate |
|
1.35 |
% |
0.81 |
% |
1.11 |
% |
1.82 |
% |
The dividend yield assumption is based on the Company’s history and future expectations of dividend payouts. The expected life of the performance-based RSUs is the service period at the end of which the RSUs will vest if the performance conditions are satisfied. The volatility assumption is based on the actual volatility of Logitech’s daily closing share price over a look-back period equal to the years of expected life. The risk free interest rate is derived from the yield on U.S. Treasury Bonds for a term of the same number of years as the expected life.
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 the three months ended September 30, 2011 and 2010 were $2.4 million and $2.0 million. During the six months ended September 30, 2011 and 2010, the charges to expense for these plans was $5.5 million and $3.9 million.
Defined Benefit Plans
Certain of the Company’s subsidiaries sponsor defined benefit pension plans or non-retirement post-employment benefits covering substantially all of their employees. 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.
The net periodic benefit cost for defined benefit pension plans and non-retirement post-employment benefit obligations for the three and six months ended September 30, 2011 and 2010 was as follows (in thousands):
|
|
Three months ended |
|
Six months ended |
|
|
|
September 30, |
|
September 30, |
|
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
1,937 |
|
$ |
1,081 |
|
$ |
3,232 |
|
$ |
2,100 |
|
Interest cost |
|
632 |
|
425 |
|
1,137 |
|
827 |
|
Expected return on plan assets |
|
(235 |
) |
(444 |
) |
(653 |
) |
(859 |
) |
Amortization of net transition obligation and prior service cost |
|
39 |
|
36 |
|
79 |
|
73 |
|
Recognized net actuarial loss |
|
359 |
|
92 |
|
459 |
|
179 |
|
Net periodic benefit cost |
|
$ |
2,732 |
|
$ |
1,190 |
|
$ |
4,254 |
|
$ |
2,320 |
| |