| Employee Stock-Based Compensation | Employee Stock-Based Compensation As of March 31, 2023, the Company offers the 2006 Employee Share Purchase Plan (Non-U.S.), as amended and restated ("2006 ESPP)", the 1996 Employee Share Purchase Plan (U.S.), as amended and restated ("1996 ESPP"), and the 2006 Stock Incentive Plan ("2006 Plan") as amended and restated. Shares issued to employees as a result of purchases or exercises under these plans are generally issued from shares held in treasury stock. Under the 1996 ESPP and 2006 ESPP plans, eligible employees may purchase shares at the lower of 85% of the fair market value at the beginning or the end of each offering period, which is generally six months. Subject to continued participation in these plans, purchase agreements are automatically executed at the end of each offering period. An aggregate of 29.0 million shares were reserved for issuance under the 1996 and 2006 ESPP plans. As of March 31, 2023, a total o f 3.6 million sha res were available for new awards under these plans. The 2006 Plan provides for the grant to eligible employees and non-employee directors of stock options, stock appreciation rights, and restricted stock units. Awards under the 2006 Plan may be conditioned on continued employment, the passage of time or the satisfaction of performance and market vesting criteria. The 2006 Plan, as amended, has no expiration date. On June 29, 2022, the Board authorized 3.3 million additional shares for issuance under the 2006 Plan. An aggregate of 33.8 million shares were reserved for issuance under the 2006 Plan. As of March 31, 2023, a total of 8.4 million shares were available for new awards under this plan. Stock options granted to employees under the 2006 Plan have terms not exceeding ten years and are issued at exercise prices not less than the fair market value on the date of grant. Service-based restricted stock units ("RSUs") granted to employees under the 2006 Plan generally vest in four equal annual installments on the grant date anniversary. RSUs granted to non-executive board members under the 2006 Plan vest on the grant date anniversary, or if earlier and only if the non-executive board member is not re-elected as a director at such annual general meeting, the date of the next annual general meeting following the grant date. Restricted stock units with certain market- and performance-based conditions ("PSUs") granted to employees under the 2006 Plan vest at the end of the three-year performance period upon meeting predetermined financial metrics over three years, with the number of shares to be received upon vesting determined based on weighted average constant currency revenue growth rate and the Company's total shareholder return ("TSR") relative to the performance of companies in the Russell 3000 Index over the same three years period. The following table summarizes share-based compensation expense and total income tax benefit recognized for fiscal years 2023, 2022 and 2021 (in thousands): Years Ended March 31, 2023 2022 2021 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 Share-based compensation costs capitalized as part of inventory were $5.6 million , $5.2 million, and $4.3 million for the fiscal year ended March 31, 2023, 2022 and 2021, respectively. As of March 31, 2023, there was $125.2 million of total future stock-based compensation cost to be recognized over a weighted-average period of 2.4 years. The estimates of share-based compensation expense require a number of complex and subjective assumptions including stock price volatility, employee exercise patterns, probability of achievement of the set performance condition, dividend yield, related tax effects and the selection of an appropriate fair value model. The grant date fair value of the stock options and ESPP using the Black-Scholes-Merton option-pricing valuation model and the grant date fair value of the PSUs using the Monte-Carlo simulation method are determined with the following assumptions and values: Stock Options (1) Employee Stock Purchase Plans Year Ended March 31, Years Ended March 31, 2022 2023 2022 2021 Expected dividend rate 1.18 % 1.78 % 1.03 % 1.04 % Risk-free interest rate 1.99 % 3.86 % 0.27 % 0.10 % Expected volatility 34 % 46 % 35 % 47 % Expected term (years) 6.2 0.5 0.5 0.5 Weighted average grant date fair value per share $ 25.88 $ 16.32 $ 23.55 $ 24.67 (1) No stock options were granted for fiscal years 2023 and 2021. PSUs Years Ended March 31, 2023 2022 2021 Expected dividend rate 1.46 % 0.78 % 1.24 % Risk-free interest rate 2.78 % 0.31 % 0.21 % Expected volatility 39 % 37 % 31 % Expected term (years) 3.0 3.0 3.0 The expected dividend rate assumption is based on the Company's history and future expectations of dividend payouts. The unvested PSUs or unexercised options are not eligible for these dividends. The expected term is based on the purchase offerings periods expected to remain outstanding for employee stock purchase plan or the performance period for PSUs. The expected term for stock options represents the estimated period of time until option exercise. Since the Company has limited historical stock option exercise experience, the Company used the simplified method in estimating the expected term, which is calculated as the average of the sum of the vesting term and the original contractual term of the stock options. Expected volatility is based on historical volatility using the Company's daily closing prices, or including the volatility of components of the Russell 3000 Index for PSUs, over the expected term. The Company considers the historical price volatility of its shares 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 expected term of the Company's share-based awards. For PSUs, the Company estimates the probability and timing of the achievement of the set performance condition at the time of the grant based on the historical financial performance and the financial forecast in the remaining performance period and reassesses the probability in subsequent periods when actual results or new information become available. A summary of the Company's stock option activities under all stock plans for fiscal years 2023, 2022 and 2021 is as follows: Number of Shares Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term Aggregate Intrinsic Value (In thousands) (Years) (In thousands) Outstanding, March 31, 2020 1,969 Exercised (1,347) $ 68,596 Outstanding, March 31, 2021 622 Granted 842 Exercised (71) $ 5,573 Outstanding, March 31, 2022 1,393 $ 62 8.3 $ 21,830 Exercised (155) $ 21 $ 6,482 Forfeited (118) $ 80 Outstanding, March 31, 2023 1,120 $ 66 7.6 $ 7,491 Vested and exercisable, March 31, 2023 396 $ 39 5.2 $ 7,491 The tax benefit realized for the tax deduction from options exercised during fiscal years 2023, 2022 and 2021 was $0.1 million, $1.2 million and $0.6 million, respectively. A summary of the Company's RSU and PSU activities for fiscal years 2023, 2022 and 2021 is as follows: Number of Shares Weighted-Average Grant Date Fair Value Aggregate (In thousands) (In thousands) Outstanding, March 31, 2020 3,951 $ 36 Granted—RSUs 1,046 $ 60 Granted—PSUs 303 $ 67 Vested (1,444) $ 168,816 Forfeited (213) Outstanding, March 31, 2021 3,643 $ 45 Granted—RSUs 868 $ 103 Granted—PSUs 203 $ 124 Vested (1,463) $ 133,977 Forfeited (205) Outstanding, March 31, 2022 3,046 $ 68 Granted—RSUs 1,584 $ 53 Granted—PSUs 407 $ 69 Vested (1,143) $ 48 $ 85,152 Forfeited (438) $ 68 Outstanding, March 31, 2023 3,456 $ 66 The shares outstanding as of March 31, 2023 above include 0.8 million shares of PSUs. The Company presents the number of PSUs at 100 percent of the performance target; however, the aggregate fair value of shares vested during the year is based on the actual number of stock units vested based on the achievement of the financial metrics over the performance period. The tax benefit realized for the tax deduction from RSUs and PSUs that vested during fiscal years 2023, 2022 and 2021 was $11.1 million, $25.2 million and $16.3 million, respectively. 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 Company recognizes the overfunded or underfunded status of defined benefit pension plans and non-retirement post-employment benefit obligations as an asset or liability in its consolidated balance sheets and recognizes changes in the funded status of defined benefit pension plans in the year in which the changes occur through accumulated other comprehensive income (loss), which is a component of shareholders' equity. Each plan's assets and benefit obligations are generally remeasured as of March 31 each year. The net periodic benefit cost of the defined benefit pension plans and the non-retirement post-employment benefit obligations for fiscal years 2023, 2022 and 2021 was as follows (in thousands): Years Ended March 31, 2023 2022 2021 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) Amortization: Net prior service credit recognized (458) (465) (467) Net actuarial loss (gain) recognized (3,047) (2,158) 2,144 Curtailment gain (4,225) — — Settlement gain (339) — — Total net periodic benefit cost $ 3,780 $ 10,060 $ 12,310 The components of net periodic benefit cost other than the service costs component are included in other income (expense), net in the consolidated statements of operations. The changes in projected benefit obligations for fiscal years 2023 and 2022 were as follows (in thousands): Years Ended March 31, 2023 2022 Projected benefit obligations, beginning of the year $ 207,551 $ 202,348 Service costs 13,195 14,693 Interest costs 2,408 920 Plan participant contributions 6,870 6,092 Actuarial gain (22,965) (31,198) Benefits paid (2,646) (3,904) Transfer of prior vested benefits 11,579 14,963 Settlement (15,348) — Curtailment (3,923) — Administrative expense paid (147) (130) Currency exchange rate changes (1,238) 3,767 Projected benefit obligations, end of the year $ 195,336 $ 207,551 The accumulated benefit obligation for all defined benefit pension plans as of March 31, 2023 and 2022 was $170.3 million and $178.5 million, respectively. Actuarial gains related to the change in the benefit obligation for the Company's pension plans for fiscal years 2023 and 2022 w ere primarily due to an increase in discount rate. The following table presents the changes in the fair value of defined benefit pension plan assets for fiscal years 2023 and 2022 (in thousands): Years Ended March 31, 2023 2022 Fair value of plan assets, beginning of the year $ 156,118 $ 128,061 Actual return on plan assets (6,008) (2,156) Employer contributions 11,645 10,877 Plan participant contributions 6,870 6,092 Benefits paid (2,646) (3,904) Transfer of prior vested benefits 11,579 14,963 Settlement (15,348) — Administrative expenses paid (147) (130) Currency exchange rate changes 536 2,315 Fair value of plan assets, end of the year $ 162,599 $ 156,118 The Company's investment objectives are to ensure that the assets of its defined benefit plans are invested to provide an optimal rate of investment return on the total investment portfolio, consistent with the assumption of a reasonable risk level, and to ensure that pension funds are available to meet the plans' benefit obligations as they become due. The Company believes that a well-diversified investment portfolio will result in the highest attainable investment return with an acceptable level of overall risk. Investment strategies and allocation decisions are also governed by applicable governmental regulatory agencies. The Company's investment strategy with respect to its largest defined benefit plan, which is available only to Swiss employees, is to invest per the following allocation: 33% in equities, 28% in bonds, 28% in real estate, 4% in cash and cash equivalents and the remaining in other investments. The Company can invest in real estate funds, commodity funds, and hedge funds depending upon economic conditions. The following tables present the fair value of the defined benefit pension plan assets by major categories and by levels within the fair value hierarchy as of March 31, 2023 and 2022 (in thousands): March 31, 2023 2022 Level 1 Level 2 Total Level 1 Level 2 Total Cash and cash equivalents $ 7,071 $ — $ 7,071 $ 16,317 $ — $ 16,317 Equity securities 51,963 — 51,963 48,591 — 48,591 Debt securities 43,493 — 43,493 38,513 — 38,513 Real estate funds 21,197 23,710 44,907 25,146 13,077 38,223 Hedge funds 606 7,907 8,513 — 8,076 8,076 Other 6,248 404 6,652 6,034 364 6,398 Total fair value of plan assets $ 130,578 $ 32,021 $ 162,599 $ 134,601 $ 21,517 $ 156,118 The funded status of the plans was as follows (in thousands): Years Ended March 31, 2023 2022 Fair value of plan assets $ 162,599 $ 156,118 Less: projected benefit obligations 195,336 207,551 Underfunded status $ (32,737) $ (51,433) Amounts recognized on the balance sheets for the plans were as follows (in thousands): March 31, 2023 2022 Current liabilities $ 1,407 $ 1,677 Non-current liabilities 31,330 49,756 Total liabilities $ 32,737 $ 51,433 Amounts recognized in accumulated other comprehensive income (loss) related to defined benefit pension plans were as follows (in thousands): March 31, 2023 2022 Net prior service credits $ 2,201 $ 2,883 Net actuarial gain (loss) 5,690 (4,304) Accumulated other comprehensive income (loss) 7,891 (1,421) Deferred taxes (3,366) (2,074) Accumulated other comprehensive income (loss), net of tax $ 4,525 $ (3,495) The actuarial assumptions for the defined benefit plans were as follows: Years Ended March 31, 2023 2022 Benefit Obligations: Discount rate 1.00% - 7.25% 1.00% - 6.75% Estimated rate of compensation increase 2.25% - 10.00% 2.00% - 10.00% Cash balance interest credit rate 0.00% - 1.75% 0.00% - 1.75% Years Ended March 31, 2023 2022 2021 Net Periodic Costs: Discount rate 0.50% - 6.75% 0.25% - 6.00% 0.50% - 6.75% Estimated rate of compensation increase 2.00% - 10.00% 2.00% - 10.00% 2.25% - 10.00% Expected average rate of return on plan assets 1.00% - 2.50% 1.00% - 2.25% 1.00% - 2.50% Cash balance interest credit rate 0.00% - 1.75% 0.00% - 1.75% 0.00% - 1.75% The discount rate is estimated based on corporate bond yields or securities of similar quality in the respective country, with a duration approximating the period over which the benefit obligations are expected to be paid. The Company bases the compensation increase assumptions on historical experience and future expectations. The expected average rate of return for the Company's defined benefit pension plans represents the average rate of return expected to be earned on plan assets over the period that the benefit obligations are expected to be paid, based on government bond notes in the respective country, adjusted for corporate risk premiums as appropriate. The following table reflects the benefit payments that the Company expects the plans to pay in the periods noted (in thousands): Years Ending March 31, 2024 $ 26,765 2025 11,728 2026 12,046 2027 14,440 2028 12,772 Next five fiscal years 66,302 Total expected benefit payments by the plan $ 144,053 The Company expects to contribute $9.4 million to its defined benefit pension plans during fiscal year 2024. 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 2023, 2022 and 2021, were $14.4 million, $13.9 million and $10.6 million, respectively. Deferred Compensation Plan One of the Company's subsidiaries offers a deferred compensation plan that permits eligible employees to make 100% vested salary and incentive compensation deferrals within established limits. The Company does not make contributions to the plan. The deferred compensation plan's assets consist of marketable securities and are included in other assets on the consolidated balance sheets. The marketable securities were recorded at a fair value of $28.2 million and $28.4 million as of March 31, 2023 and 2022, respectively, based on quoted market prices (see Note 9). The Company also had deferred compensation liability of $28.2 million and $28.4 million, which are included in other non-current liabilities on the consolidated balance sheets as of March 31, 2023 and 2022, respectively. Earnings, gains and losses on deferred compensation investments are included in other income (expense), net and corresponding changes in deferred compensation liability are included in operating expenses and cost of goods sold in the consolidated statements of operations (see Note 6). |
