Estee Lauder 2007 Annual Report Download - page 81

of the Company’s shares traded during the period
(“VWAP”). For the purpose of limiting the price adjust-
ment, approximately 10,640,500 shares purchased are
subject to a cap, which sets a maximum price for these
shares. For the shares subject to the cap, the maximum
price adjustment the Company could pay is equal to
$80.6 million. The cap is not carried on the accompany-
ing consolidated balance sheet as an asset or liability
because it is a component of a transaction involving the
Company’s equity securities and can potentially be settled
by the issuance of the Company’s common stock or a
cash payment at the Company’s discretion. If share
settlement is elected by the Company, the number of
shares it could potentially issue at the end of the repur-
chase period cannot currently be determined since the
number will be dependent upon the amount, if any, that
the Company might owe as a price adjustment, divided
by the market price of its common stock on the settle-
ment date. The maximum number of shares potentially
issuable is 25,000,000.
The following table provides information as of June 30,
2007 regarding the accelerated share repurchase program:
Maturity —
October 2007
(In millions, except share and per share data)
Shares subject to cap 10,640,500
Cap price per share $54.57
Maximum potential price adjustment
subject to cap $ 80.6
Shares not subject to cap 5,320,300
Estimated interim price adjustment at
June 30, 2007 $ 8.5
Estimated impact of a $1 change in the VWAP $ 16.0
Subsequent to June 30, 2007, the fi nancial counterparty
informed the Company that it had completed its obliga-
tion pursuant to the accelerated share repurchase
program (see Note 19 — Unaudited Subsequent Events).
NOTE 13 — STOCK PROGRAMS
As of June 30, 2007, the Company has three active equity
compensation plans which include the Amended and
Restated Fiscal 2002 Share Incentive Plan, the Fiscal 1999
Share Incentive Plan and the Non-Employee Director
Share Incentive Plan (collectively, the “Plans”). These
Plans currently provide for the issuance of 32,894,400
shares, which consist of shares originally provided for and
shares transferred to the Plans from a previous plan and
employment agreement, to be granted in the form of
stock-based awards to key employees, consultants and
non-employee directors of the Company. As of June 30,
2007, approximately 8,532,300 shares of Class A Common
Stock were reserved and available to be granted pursuant
to these Plans. The Company may satisfy the obligation of
its stock-based compensation awards with either new or
treasury shares. The Company’s stock compensation
awards outstanding at June 30, 2007 include stock
options, performance share units (“PSU”), restricted stock
units (“RSU”) and share units.
Stock-based compensation expense is attributable to
the granting of, and the remaining requisite service periods
of, stock options, PSUs, RSUs and share units. Compensation
expense attributable to net stock-based compensation for
fi scal 2007 and 2006 was $43.2 million ($28.3 million
after tax) and $35.7 million ($23.4 million after tax),
respectively, or $.14 and $.11 for both basic and diluted
net earnings per common share, respectively. As of
June 30, 2007 and 2006, the total unrecognized compen-
sation cost related to nonvested stock-based awards was
$30.4 million and $26.3 million, respectively, and the
related weighted-average period over which it is expected
to be recognized is approximately 1.8 years and 2.2 years,
respectively.
Prior to the Company’s adoption of SFAS No. 123(R) in
fi scal 2006, SFAS No. 123 required that the Company pro-
vide pro forma information regarding net earnings and
net earnings per common share as if compensation cost
for the Company’s stock-based awards had been deter-
mined in accordance with the fair value method pre-
scribed therein. The Company had previously adopted
the disclosure portion of SFAS No. 148, “Accounting for
Stock-Based Compensation — Transition and Disclosure,”
requiring quarterly SFAS No. 123 pro forma disclosure.
The pro forma charge for compensation cost related to
stock-based awards granted was recognized over the
service period. For stock options, the service period
represents the period of time between the date of grant
and the date each option becomes exercisable without
consideration of acceleration provisions (e.g., retirement,
change of control, etc.).
The following table illustrates the effect on net earnings
per common share as if the fair value method had been
applied to all outstanding awards for fi scal 2005:
YEAR ENDED JUNE 30, 2005
(In millions, except per share data)
Net earnings, as reported $406.1
Deduct: Total stock-based compensation expense
determined under fair value method for all awards,
net of related tax effects 21.8
Pro forma net earnings $384.3
Earnings per common share:
Net earnings per common share — Basic, as reported $ 1.80
Net earnings per common share — Basic, pro forma $ 1.71
Net earnings per common share — Diluted, as reported $ 1.78
Net earnings per common share — Diluted, pro forma $ 1.67
80 THE EST{E LAUDER COMPANIES INC.