Avon 2005 Annual Report Download - page 35

2005฀ANNUAL฀REPORT฀฀55
8LONG-TERM฀฀ INCENTIVE฀PLANS
The Avon Products, Inc. 2005 Stock Incentive Plan (the “2005
Plan”) was adopted in March 2005. The 2005 Plan provides for sev-
eral types of equity-based incentive compensation awards including
stock options, stock appreciation rights, restricted stock, restricted
stock units and performance unit awards. Under the 2005 Plan, the
maximum number of shares that may be awarded is 31,000,000
shares, of which no more than 8,000,000 shares may be used for
restricted stock awards and restricted stock unit awards.
The Avon Products, Inc. 2000 Stock Incentive Plan (the “2000
Plan”) also provided for several types of equity-based incentive
compensation awards including stock options, stock apprecia-
tion rights, restricted stock, restricted stock units and performance
unit awards. Under the 2000 Plan, the maximum number of
shares that could be awarded was 36,500,000 shares, of which
no more than 12,000,000 shares may be used for restricted
stock awards. No additional awards will be made under the
2000 Plan.
Stock Options
Under the 2000 and 2005 Plans, stock options are awarded
annually and generally vest in thirds over the three-year period
following each option grant date. Stock options are granted at
a price no less than fair market value on the date the option is
granted and have a term of ten years from the date of grant.
A summary of our stock option activity, weighted-average exercise
price and related information for the years ended December 31 is
as follows:
2005 2004 2003
Weighted- Weighted- Weighted-
Shares Average Shares Average Shares Average
(in 000’s) Price (in 000’s) Price (in 000’s) Price
Outstanding – beginning of year 20,196 $26.85 21,216 $ 22.52 22,686 $ 20.58
Granted 7,327 41.19 5,329 36.64 4,930 26.52
Exercised (Note 9) (2,881) 21.26 (6,035) 20.25 (5,364) 18.72
Forfeited (598) 36.28 (314) 27.26 (1,036) 18.64
Outstanding – end of year 24,044 $31.66 20,196 $ 26.85 21,216 $ 22.52
Options exercisable – end of year 12,302 $25.40 10,318 $ 21.96 11,408 $ 19.79
The following table summarizes information about stock options outstanding at December 31, 2005:
Options Outstanding Options Exercisable
Shares Average Average Shares Average
Exercise Prices (in 000’s) Price Term (in 000’s) Price
$9.88 – $19.96 2,184 $18.38 3 years 2,184 $18.38
$20.08 – $24.89 2,547 21.24 5 years 2,547 21.24
$25.69 – $31.26 7,446 26.55 7 years 5,838 26.53
$32.89 – $44.71 11,867 39.54 9 years 1,733 36.53
24,044 12,302
Restricted Stock and Restricted Stock Units
During 2005, 2004 and 2003, restricted stock and restricted stock
units with aggregate value and vesting periods were granted to
employees as follows: 2005 – 242,406 shares or units valued at
$9.0 generally vesting in three years; 2004 – 616,500 shares or
units valued at $21.3, generally vesting over three years; and
2003 – 220,500 shares or units valued at $5.7, generally vesting
over three years.
Compensation expense related to grants of restricted stock or
restricted stock units to employees was $9.8 in 2005 (2004 – $8.6;
2003 – $6.4). The unamortized cost of restricted stock and restricted
stock units as of December 31, 2005, was $15.9 (2004 – $17.2)
and was included in Additional paid-in capital.
2005-2007 Performance Cash Plan
In 2005, we established a three-year performance cash plan for
the period 2005-2007 (the “Plan”). Awards were set with the
objective of payouts ranging from 30% of target for the achieve-
ment of threshold financial objectives aligned with our long-term
business plan to 200% of target if maximum performance objec-
tives are achieved. The Compensation Committee of the Board of
Directors has designated total revenues and operating margin as
the key performance measures under the Plan. If the objectives
under the Plan are achieved, total cash payments in the range of
approximately $9 to $57 would be made in the first quarter of
2008. However, management has determined that the likelihood
of achieving the objectives is remote and, therefore, no expense
has been recognized during 2005.