Avon 2011 Annual Report Download - page 84

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. Share-Based Compensation Plans
The Avon Products, Inc. 2010 Stock Incentive Plan (the “2010 Plan”), which is shareholder approved, provides for several types of share-
based incentive compensation awards including stock options, stock appreciation rights, restricted stock, restricted stock units and
performance restricted stock units. Under the 2010 Plan, the maximum number of shares that may be awarded is 32,000,000 shares, where
the maximum number of shares are reduced as follows: (i) in the case of the grant of an award of an option or Stock Appreciation Right
(“SAR”), by each share of stock subject to such an award and (ii) in the case of the grant of an award payable in stock other than an option
or SAR by 2.33 multiplied by each share of stock subject to such award. Shares issued under share-based awards will be primarily funded
with issuance of new shares.
We have issued stock options, stock appreciation rights, restricted stock units and performance restricted stock units under the 2010 Plan.
Stock option awards are granted with an exercise price equal to the closing market price of our stock at the date of grant. Those option
awards and stock appreciation rights generally vest in thirds over the three-year period following each option grant date and have ten-year
contractual terms. Restricted stock units generally vest and settle after three years. Performance restricted stock units generally vest after
three years only upon the satisfaction of certain performance conditions.
For the years ended December 31:
2011 2010 2009
Compensation cost for stock options, stock appreciation rights and
restricted stock units $36.6 $57.6 $54.9
Total income tax benefit recognized for share-based arrangements 11.7 18.7 18.5
All of the compensation cost for stock options, stock appreciation rights, and restricted stock units for 2011, 2010, and 2009 was recorded
in selling, general and administrative expenses. For the years ended December 31, 2011, 2010, and 2009, we have determined that we have
a pool of windfall tax benefits.
Stock Options and Stock Appreciation Rights
The fair value of each option and stock appreciation right award is estimated on the date of grant using a Black-Scholes-Merton option
pricing model with the following weighted-average assumptions for options granted during the years ended December 31:
2011 2010 2009
Risk-free rate(1) 1.8% 1.9% 1.6%
Expected term(2) 4 years 4 years 4 years
Expected volatility(3) 38% 38% 35%
Expected dividends(4) 3.0% 3.0% 4.0%
(1) The risk-free rate was based upon the rate on a zero coupon U.S. Treasury bill, for periods within the contractual life of the option, in effect at the timeof
grant.
(2) The expected term of the option or stock appreciation right was based on historical employee exercise behavior, the vesting terms of the respective option
or stock appreciation right and a contractual life of ten years.
(3) Expected volatility was based on the weekly historical volatility of our stock price, over a period similar to the expected life of the option.
(4) Assumed the current cash dividends of $.23 during 2011, $.22 during 2010 and $.21 during 2009 per share each quarter on our common stock for
options and stock appreciation rights granted during those years.
The weighted-average grant-date fair values per share of options and stock appreciation rights granted were $6.51 during 2011, $7.91
during 2010 and $3.18 during 2009.