Estee Lauder 2007 Annual Report Download - page 82

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The exercise period for all stock options generally may not
exceed ten years from the date of grant. Stock option
grants to individuals generally become exercisable in
three substantively equal tranches over a service period of
up to four years. The Company attributes the value of
option awards on a straight-line basis over the requisite
service period for each separately vesting portion of the
award as if the award was, in substance, multiple awards.
The per-share weighted-average grant date fair value of
stock options granted during fi scal 2007, 2006 and 2005
was $13.69, $11.87 and $16.45, respectively. The total
intrinsic value of stock options exercised during fi scal
2007, 2006 and 2005 was $72.3 million, $38.0 million and
$73.2 million, respectively.
The fair value of each option grant was estimated on the
date of grant using the Black-Scholes option-pricing model
with the following assumptions:
YEAR ENDED JUNE 30 2007 2006 2005
Weighted-average expected
stock-price volatility 24% 23% 32%
Weighted-average expected
option life 8 years 8 years 7 years
Average risk-free interest rate 4.7% 4.3% 3.9%
Average dividend yield 1.2% .9% .7%
2
007
24
%
8
y
ear
s
4.7
%
1.2
%
Performance Share Units
During fi scal 2007, the Company issued 119,000 PSUs,
which will be settled in stock subject to the achievement
of the Company’s net sales and net earnings per share
goals for the three years ending June 30, 2009. Settle-
ment will be made pursuant to a range of opportunities
relative to the net sales and net earnings per share targets
of the Company and, as such, the compensation cost of
the PSU is subject to adjustment based upon the attain-
ability of these target goals. No settlement will occur for
results below the applicable minimum threshold and addi-
tional shares shall be issued if performance exceeds the
targeted performance goals. PSUs are accompanied by
dividend equivalent rights that will be payable in cash
upon settlement of the PSU. These awards are subject to
the provisions of the agreement under which the PSUs
are granted. The PSUs were valued at the closing market
value of the Company’s Class A Common Stock on the
date of grant and generally vest at the end of the perfor-
mance period.
The following is a summary of the status of the
Company’s PSUs as of June 30, 2007 and activity during
the fi scal year then ended:
Weighted-Average
Shares Grant Date Fair Value
(Shares in thousands)
Nonvested at June 30, 2006 111.1 $35.00
Granted 119.0 39.56
Vested — —
Forfeited — —
Nonvested at June 30, 2007 230.1 $37.36
Restricted Stock Units
The Company granted approximately 603,100 RSUs
during fi scal 2007, of which 332,800 are scheduled to vest
on October 31, 2007, 173,500 on October 31, 2008 and
96,800 on November 2, 2009, all subject to the con tinued
employment or retirement of the grantees. Certain RSUs
granted in fi scal 2007 are accompanied by dividend
equivalent rights that will be payable in cash upon settle-
ment of the RSU and, as such, were valued at the closing
market value of the Company’s Class A Common Stock
on the date of grant. Other RSUs granted in fi scal 2007
are not accompanied by dividend equivalent rights and,
as such, were valued at the closing market value of the
Company’s Class A Common Stock on the date of grant
THE EST{E LAUDER COMPANIES INC. 81
Stock Options
A summary of the Company’s stock option programs as of June 30, 2007 and changes during the fi scal year then ended
is presented below:
Aggregate Weighted-Average
Weighted-Average Intrinsic Value(1) Contractual Life
Shares Exercise Price (in millions) Remaining in Years
(Shares in thousands)
Outstanding at June 30, 2006 26,215.7 $39.53
Granted at fair value 1,684.3 39.68
Exercised (5,001.9) 30.93
Expired (202.6) 42.50
Forfeited (123.5) 39.32
Outstanding at June 30, 2007 22,572.0 41.42 $129.8 4.4
Exercisable at June 30, 2007 18,747.6 41.89 $105.4 3.6
(1)
The intrinsic value of a stock option is the amount by which the current market value of the underlying stock exceeds the exercise price of the option.