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Employee Benefit Plans
6 Months Ended
Sep. 30, 2011
Employee Benefit Plans 
Employee Benefit Plans

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