Estee Lauder 2011 Annual Report Download - page 152

150 THE EST{E LAUDER COMPANIES INC.
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 following is a summary of the per-share weighted
average grant date fair value of stock options granted and
total intrinsic value of stock options exercised:
YEAR ENDED JUNE 30 2011 2010 2009
(In millions, except per share data)
Per-share weighted average
grant date fair value of
stock options granted $18.93 $10.64 $17.30
Intrinsic value of stock
options exercised $178.1 $ 91.8 $ 24.7
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 2011 2010 2009
Weighted-average expected
stock-price volatility 31% 30% 28%
Weighted-average expected
option life 8 years 8 years 8 years
Average risk-free interest rate 2.2% 3.1% 3.4%
Average dividend yield 1.1% 2.0% 1.2%
The Company uses a weighted-average expected stock-
price volatility assumption that is a combination of both
current and historical implied volatilities of the underlying
stock. The implied volatilities were obtained from publicly
available data sources. For the weighted-average expected
option life assumption, the Company considers the exer-
cise behavior of past grants and models the pattern of
aggregate exercises. The average risk-free interest rate is
based on the U.S. Treasury strip rate for the expected
term of the options and the average dividend yield is
based on historical experience.
Performance Share Units
During fiscal 2011, the Company granted 184,600 PSUs,
which will be settled in stock subject to the achievement
of the Company’s net sales, diluted net earnings per
common share and return on invested capital goals for
the three fiscal years ending June 30, 2013, all subject
to the continued employment or retirement of the
grantees. Settlement will be made pursuant to a range of
opportunities relative to the net sales, diluted net earnings
per common share and return on invested capital 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 of a tar-
get and additional shares shall be issued if performance
exceeds the targeted performance goals. Certain PSUs
are accompanied by dividend equivalent rights that will
be payable in cash upon settlement of the PSU. Other
PSUs granted in fiscal 2011 are not accompanied by divi-
dend 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 less the discounted present
value of the dividends expected to be paid on the shares
during the vesting period. 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. Approximately 140,000 shares of Class A
Common Stock are anticipated to be issued, relative to
the target goals set at the time of issuance, in settlement
of the 131,000 PSUs that vested as of June 30, 2011. In
September 2010, 47,500 shares of the Company’s Class A
Common Stock were issued and related accrued divi-
dends were paid, relative to the target goals set at the
time of issuance, in settlement of 93,200 PSUs which
vested as of June 30, 2010.
The following is a summary of the status of the
Company’s PSUs as of June 30, 2011 and activity during
the fiscal year then ended:
Weighted-Average
Grant Date
Shares Fair Value Per Share
(Shares in thousands)
Nonvested at June 30, 2010 296.3 $42.00
Granted 184.6 58.61
Vested (131.0) 52.83
Forfeited — —
Nonvested at June 30, 2011 349.9 46.71
Restricted Stock Units
The Company granted approximately 929,200 RSUs dur-
ing fiscal 2011 which, at the time of grant, were scheduled
to vest as follows: 498,800 on October 31, 2011, 285,100
on October 31, 2012 and 145,300 on October 31, 2013,
all subject to the continued employment or retirement of
the grantees. Certain RSUs granted in fiscal 2011 are
accompanied by dividend equivalent rights that will be
payable in cash upon settlement of the RSU and, as such,