Estee Lauder 2013 Annual Report Download - page 176

174 THE EST{E LAUDER COMPANIES INC.
Treasury strip rates over the contractual term of the grant
and the dividend yield is based on historical experience.
Market Share Unit
As of June 30, 2013, the Company had one outstanding
market share unit with a grant date fair value of $10.6 mil-
lion that was estimated using a lattice model with a Monte
Carlo simulation and the following assumptions: contrac-
tual life of 41 months, a weighted-average expected vola-
tility of 29%, a weighted-average risk-free interest rate of
1.6% and a weighted-average dividend yield of 1.0%.
The Company used an expected stock-price volatility
assumption that is a combination of both current and his-
torical implied volatilities from options on the underlying
stock. The implied volatilities were obtained from publicly
available data sources. The expected life is equal to the
contractual term of the grant. The average risk-free inter-
est rate is based on the U.S. Treasury strip rates over the
contractual term of the grant and the average dividend
yield is based on historical experience.
Share Units
The Company grants share units to certain non-employee
directors under the Non-Employee Director Share Incen-
tive Plan. The share units are convertible into shares of the
Company’s Class A Common Stock as provided for in that
plan. Share units are accompanied by dividend equivalent
rights that are converted to additional share units when
such dividends are declared.
The following is a summary of the status of the
Company’s share units as of June 30, 2013 and activity
during the fiscal year then ended:
Weighted-Average
Grant Date
Shares Fair Value Per Share
(Shares in thousands)
Outstanding at June 30, 2012 73.7 $28.69
Granted 12.1 57.49
Dividend equivalents 1.5 62.65
Converted — —
Outstanding at June 30, 2013 87.3 33.27
Cash Units
Certain non-employee directors defer cash compensation
in the form of cash payout share units, which are not sub-
ject to the Plans. These share units are classified as liabili-
ties and, as such, their fair value is adjusted to reflect the
current market value of the Company’s Class A Common
Stock. The Company recorded $3.0 million, $0.8 million
and $4.9 million as compensation expense to reflect addi-
tional deferrals and the change in the market value for
fiscal 2013, 2012 and 2011, respectively.
are accompanied by dividend equivalent rights that will
be payable in cash upon settlement 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 fiscal 2013 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 less the discounted
present value of the dividends expected to be paid on the
shares during the vesting period.
The following is a summary of the status of the
Company’s RSUs as of June 30, 2013 and activity during
the fiscal year then ended:
Weighted-Average
Grant Date
Shares Fair Value Per Share
(Shares in thousands)
Nonvested at June 30, 2012 2,392.9 $38.22
Granted 1,425.0 59.02
Vested (1,514.7) 36.00
Forfeited (80.4) 48.96
Nonvested at June 30, 2013 2,222.8 52.68
Performance Share Units Based
on Total Stockholder Return
During fiscal 2013, the Company granted PSUs to an
executive of the Company with an aggregate target pay-
out of 162,760 shares of the Company’s Class A Common
Stock, subject to continued employment through the end
of the relative performance periods, which end June 30,
2015, 2016 and 2017. Such PSUs will be settled based
upon the Company’s relative total stockholder return
(“TSR”) over the relevant performance period as
c ompared to companies in the S&P 500 on July 1, 2012.
No settlement will occur if the Company’s TSR falls below
a minimum threshold, and up to an aggregate of 260,416
shares of the Company’s Class A Common Stock will be
issued depending on the extent to which the Company’s
TSR equals or exceeds the minimum threshold. The PSUs
are accompanied by dividend equivalent rights that will
be payable in cash upon settlement of the PSUs.
The grant date fair value of the PSUs of $11.0 million
was estimated using a lattice model with a Monte Carlo
simulation and the following assumptions for each perfor-
mance period, respectively: contractual life of 33, 45 and
57 months, average risk-free interest rate of 0.3%, 0.5%
and 0.7% and a dividend yield of 1.0%. Using the histori-
cal stock prices and dividends from public sources, the
Company estimated the covariance structure of
the returns on S&P 500 stocks. The volatility for the
Company’s stock produced by this estimation was 32%.
The average risk-free interest rate is based on the U.S.