Estee Lauder 2009 Annual Report Download - page 150

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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 2009, 2008 and 2007
was $17.30, $14.36 and $13.69, respectively. The total
intrinsic value of stock options exercised during fi scal
2009, 2008 and 2007 was $24.7 million, $33.2 million
and $72.3 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 2009 2008 2007
Weighted-average expected
stock-price volatility 28% 25% 24%
Weighted-average expected
option life 8 years 8 years 8 years
Average risk-free interest rate 3.4% 4.5% 4.7%
Average dividend yield 1.2% 1.2% 1.2%
Performance Share Units
During fi scal 2009, the Company granted 131,000 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, 2011. 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
compensation 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 min-
imum threshold and additional shares shall be issued if
performance 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 27,000
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 96,100 PSUs that
vested as of June 30, 2009. These awards will be settled in
the fi rst quarter of fi scal 2010, subject to the approval of
the Stock Plan Subcommittee of the Company’s Board
of Directors. In September 2008, 78,400 shares of the
Company’s Class A Common Stock were issued and
related accrued dividends were paid, relative to the target
goals set at the time of issuance, in settlement of 96,600
PSUs which vested as of June 30, 2008.
The following is a summary of the status of the Com-
pany’s PSUs as of June 30, 2009 and activity during the
fi scal year then ended:
Weighted-Average
Grant Date
Shares Fair Value Per Share
(Shares in thousands)
Nonvested at June 30, 2008 189.3 $41.05
Granted 131.0 52.83
Vested (96.1) 39.56
Forfeited — —
Nonvested at June 30, 2009 224.2 48.57
Restricted Stock Units
The Company granted approximately 618,500 RSUs
during fi scal 2009. At the time of grant, 344,200 were
scheduled to vest on November 2, 2009, 178,900 on
November 1, 2010 and 95,400 on October 31, 2011,
all subject to the continued employment or retirement of
the grantees. Certain RSUs granted in fi scal 2009 are
accompanied by dividend equivalent rights that will be
THE EST{E LAUDER COMPANIES INC. 149
Stock Options
A summary of the Company’s stock option programs as of June 30, 2009 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 Per Share (in millions) Remaining in Years
(Shares in thousands)
Outstanding at June 30, 2008 20,307.2 $42.53
Granted at fair value 1,793.4 52.30
Exercised (2,630.6) 41.67
Expired (505.4) 45.12
Forfeited (49.9) 43.76
Outstanding at June 30, 2009 18,914.7 43.50 $1.9 3.8
Exercisable at June 30, 2009 15,647.0 42.70 $1.9 2.8
(1) The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option.