Estee Lauder 2015 Annual Report Download - page 114

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THE EST{E LAUDER COMPANIES INC. 111
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. PSUs granted in
fiscal 2015 are accompanied by dividend equivalent rights
that will be payable in cash upon settlement of the PSU
and, as such, were valued at the closing market value of
the Company’s Class A Common Stock on the date of
grant. These awards are subject to the provisions of the
agreement under which the PSUs are granted. The PSUs
generally vest at the end of the performance period.
Approximately 272,400 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 249,900 PSUs
that vested as of June 30, 2015. In September 2014,
approximately 377,300 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 259,700 PSUs which
vested as of June 30, 2014.
The following is a summary of the status of the
Company’s PSUs as of June 30, 2015 and activity during
the fiscal year then ended:
Weighted-Average
Grant Date
Shares Fair Value Per Share
(Shares in thousands)
Nonvested at June 30, 2014 538.6 $63.53
Granted 261.7 76.23
Vested (249.9) 59.00
Forfeited — —
Nonvested at June 30, 2015 550.4 71.59
Restricted Stock Units
The Company granted approximately 1,434,000 RSUs
during fiscal 2015 which, at the time of grant, were sched-
uled to vest as follows: 502,700 in fiscal 2016, 518,600 in
fiscal 2017 and 412,700 in fiscal 2018. All RSUs are
sub ject to the continued employment or retirement of
the grantees. The RSUs granted in fiscal 2015 are accom-
panied by dividend equivalent rights, payable upon
settlement of the RSU either in cash or shares (based on
the terms of the particular award) upon settlement of the
RSU and, as such, were valued at the closing market price
of the Company’s Class A Common Stock on the date
of grant.
The following is a summary of the status of the
Company’s RSUs as of June 30, 2015 and activity during
the fiscal year then ended:
Weighted-Average
Grant Date
Shares Fair Value Per Share
(Shares in thousands)
Nonvested at June 30, 2014 2,222.1 $62.21
Granted 1,434.0 76.16
Dividend equivalents 11.0 79.70
Vested (987.3) 60.81
Forfeited (87.7) 68.80
Nonvested at June 30, 2015 2,592.1 70.31
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
payout 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 stock-
holder return (“TSR”) over the relevant performance
period as compared 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 aggre-
gate 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 mini-
mum threshold. The PSUs are accompanied by dividend
equivalent rights that will be payable in cash upon settle-
ment of the PSU.
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 per-
formance 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
historical 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.
Treasury strip rates over the contractual term of the grant
and the dividend yield is based on historical experience.
At June 30, 2015, the end of the first performance period
under the grant, 42,549 shares of the Company’s Class A
Common Stock are anticipated to be issued, and related
dividends to be paid, in accordance with the terms of
the grant.