Estee Lauder 2011 Annual Report Download - page 153

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THE EST{E LAUDER COMPANIES INC. 151
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 2011 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, 2011 and activity during
the fiscal year then ended:
Weighted-Average
Grant Date
Shares Fair Value Per Share
(Shares in thousands)
Nonvested at June 30, 2010 1,300.9 $37.79
Granted 929.2 57.47
Vested (747.0) 38.68
Forfeited (48.0) 47.52
Nonvested at June 30, 2011 1,435.1 49.74
Market Share Unit
During fiscal 2011, the Company granted a MSU to an
executive of the Company which is payable in shares of
the Company’s Class A Common Stock, subject to contin-
ued employment through June 30, 2014. Such MSU will
be settled based upon the average closing stock price per
share of the Company’s Class A Common Stock on the
New York Stock Exchange during the 20 trading days end-
ing June 30, 2014 (“Average Price”). No settlement will
occur if the Average Price is below a minimum threshold,
and up to 160,000 shares will be issued depending on the
extent to which the Average Price equals or exceeds that
minimum threshold. The MSU is accompanied by divi-
dend equivalent rights that will be payable in cash upon
settlement of the MSU.
The grant date fair value of the MSU of $10.6 million
was estimated using a lattice model with a Monte Carlo
simulation and the following assumptions: contractual life
of 41 months, a weighted average expected volatility 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 assump-
tion that is a combination of both current and historical
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
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, 2011 and activity
during the fiscal year then ended:
Weighted-Average
Grant Date
Shares Fair Value Per Share
(Shares in thousands)
Outstanding at June 30, 2010 26.4 $39.27
Granted 2.5 71.02
Dividend equivalents 0.3 78.42
Converted — —
Outstanding at June 30, 2011 29.2 42.45
Cash Units
Certain non-employee directors defer cash compensation
in the form of cash payout share units, which are not
subject to the Plans. These share units are classified as
liabilities 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 $4.9 million as
compensation expense, $2.3 million as compensation
expense and $0.3 million as compensation income to
reflect additional deferrals and the change in the market
value for fiscal 2011, 2010 and 2009, respectively.
NOTE 17
—
NET EARNINGS ATTRIBUTABLE
TO THE EST{E LAUDER COMPANIES INC.
PER COMMON SHARE
Net earnings attributable to The Estée Lauder Companies
Inc. per common share (“basic EPS”) is computed by
dividing net earnings attributable to The Estée Lauder
Companies Inc. by the weighted-average number of
common shares outstanding and contingently issuable
shares (which satisfy certain conditions). Net earnings
attributable to The Estée Lauder Companies Inc. per com-
mon share assuming dilution (“diluted EPS”) is computed
by reflecting potential dilution from stock-based awards.