Estee Lauder 2002 Annual Report Download - page 74

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THEEST{E LAUDER COMPANIES INC.
The Company applies APB Opinion No. 25, “Accounting
for Stock Issued to Employees”, and related Interpreta-
tions in accounting for stock options and share units
granted under these programs. Under APB Opinion No.
25, no compensation expense is recognized if the exer-
cise price of the Company’s employee stock options
equals the market price of the underlying stock on the
date of the grant. Accordingly, no compensation cost has
been recognized. SFAS No. 123, “Accounting for Stock-
Based Compensation”, requires the Company to provide
pro forma information regarding net earnings and net
earnings per common share as if compensation cost
for the Company’s stock option programs had been
determined in accordance with the fair value method
prescribed therein.
Had compensation cost for these programs been
determined based upon the fair value at the grant dates
consistent with SFAS No. 123, the Company’s pro forma
net earnings and net earnings per common share would
have been as follows:
YEAR ENDED JUNE 30 2002
(i)
2001
(ii)
2000
(ii)
(In millions, except per share data)
Net earnings:
As reported $191.9 $305.2 $314.1
Pro forma 189.2 280.8 216.5
Net earnings per
common share — Basic:
As reported $.71 $ 1.18 $ 1.22
Pro forma .70 1.08 .81
Net earnings per
common share — Diluted:
As reported $.70 $ 1.16 $ 1.20
Pro forma .68 1.06 .79
(i) Beginning in fiscal 2002, the pro forma charge for compensation cost
related to stock options granted will be recognized over the service
period. 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.).
(ii) In fiscal 2001 and 2000, the Company determined the pro forma
charge for compensation cost assuming all options were immediately
vested upon the date of grant.
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 2002 2001 2000
Expected volatility 31% 31% 30%
Average expected option life 7 years 7 years 7 years
Average risk-free interest rate 4.9% 5.9% 6.1%
Dividend yield .50% .50% .50%
73
Summarized information about the Company’s stock options outstanding and exercisable at June 30, 2002 is as follows:
Exercise Price RangeOptions
(a)
Average Life
(b)
Average Price
(c)
Options
(a)
Average Price
(c)
$ 2.065 to $ 3.10 15.1 5.3 $ 3.08 15.1 $ 3.08
$13.00 to $20.813 3,531.6 3.4 13.06 3,531.6 13.06
$21.313 to $30.52 5,960.0 4.8 23.67 5,053.1 23.18
$31.875 to $47.625 8,788.6 7.6 39.33 2,660.1 37.63
$48.125 to $53.50 6,548.2 7.1 51.81 1,889.6 52.58
$ 2.065 to $53.50 24,843.5 35.10 13,149.5 27.59
(a) Shares in thousands.
(b) Weighted average contractual life remaining in years.
(c) Weighted average exercise price.
ExercisableOutstanding