Estee Lauder 2008 Annual Report Download - page 106

Download and view the complete annual report

Please find page 106 of the 2008 Estee Lauder annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 120

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120

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 2008, 2007 and 2006
was $14.36, $13.69 and $11.87, respectively. The total
intrinsic value of stock options exercised during fi scal
2008, 2007 and 2006 was $33.2 million, $72.3 million
and $38.0 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 2008 2007 2006
Weighted-average expected
stock-price volatility 25% 24% 23%
Weighted-average expected
option life 8 years 8 years 8 years
Average risk-free interest rate 4.5% 4.7% 4.3%
Average dividend yield 1.2% 1.2% .9%
200
8
25
%
8
y
ear
s
4.5
%
1.2
%
Performance Share Units
During fi scal 2008, the Company issued 119,200 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, 2010 and subject
to the continued employment of the grantees. Settlement
will be made pursuant to a range of opportunities relative
to the net sales and diluted net earnings per common
share targets of the Company and, as such, the compen-
sation cost of the PSU is subject to adjustment based
upon the attainability of these target goals. No settlement
will occur for results below the applicable minimum
threshold and additional shares shall be issued if perfor-
mance 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 performance period. Approximately 78,400 shares
of the Company’s Class A Common Stock are anticipated
to be issued, relative to the target goals set at the time of
issuance, in settlement of the 96,600 PSUs that vested as
of June 30, 2008. These awards will be settled in the fi rst
quarter of fi scal 2009, subject to the approval of the
Stock Plan Subcommittee of the Company’s Board
of Directors.
The following is a summary of the status of the
Company’s PSUs as of June 30, 2008 and activity during
the fi scal year then ended:
Weighted-Average Grant
Shares Date Fair Value Per Share
(Shares in thousands)
Nonvested at June 30, 2007 230.1 $37.36
Granted 119.2 42.58
Vested (96.6) 35.00
Forfeited (63.4) 39.76
Nonvested at June 30, 2008 189.3 41.05
Restricted Stock Units
The Company granted approximately 585,000 RSUs dur-
ing fi scal 2008. At the time of grant, 324,700 were sched-
uled to vest on October 31, 2008, 169,000 on November
2, 2009 and 91,300 on November 1, 2010, all subject to
the continued employment or retirement of the grantees.
Certain RSUs granted in fi scal 2008 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
104 THE EST{E LAUDER COMPANIES INC.
Stock Options
A summary of the Company’s stock option programs as of June 30, 2008 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, 2007 22,572.0 $41.42
Granted at fair value 1,693.7 42.64
Exercised (3,338.5) 35.18
Expired (252.0) 44.32
Forfeited (368.0) 40.50
Outstanding at June 30, 2008 20,307.2 42.53 $110.6 4.0
Exercisable at June 30, 2008 17,179.4 42.89 $ 92.2 3.2
(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.
Weighted-Average
Exercise Price
Per Share