Estee Lauder 2012 Annual Report Download - page 159

THE EST{E LAUDER COMPANIES INC. 157
net earnings per common share and return on invested
capital goals for the three fiscal years ending June 30,
2014, all subject to the continued employment or retire-
ment 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 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 of a target and additional shares shall be issued
if performance exceeds the targeted performance goals.
Certain PSUs are accompanied by dividend equivalent
rights that will be payable in cash upon settlement of the
PSU. Other PSUs granted in fiscal 2012 are not accompa-
nied 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. These awards are sub-
ject 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 495,900 shares of
Class A Common Stock are anticipated to be issued, rela-
tive to the target goals set at the time of issuance, in settle-
ment of the 330,600 PSUs that vested as of June 30,
2012. In September 2011, approximately 275,200 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
262,000 PSUs which vested as of June 30, 2011.
The following is a summary of the status of the
Company’s PSUs as of June 30, 2012 and activity during
the fiscal year then ended:
Weighted-Average
Grant Date
Shares Fair Value Per Share
(Shares in thousands)
Nonvested at June 30, 2011 699.8 $23.36
Granted 260.0 48.57
Vested (330.6) 16.71
Forfeited (3.3) 28.84
Nonvested at June 30, 2012 625.9 37.31
Restricted Stock Units
The Company granted approximately 1,336,200 RSUs
during fiscal 2012 which, at the time of grant, were sched-
uled to vest as follows: 751,500 on October 31, 2012,
3,900 on April 25, 2013, 392,500 on October 31, 2013,
3,900 on April 25, 2014, 175,500 on October 31, 2014,
5,000 on December 1, 2014 and 3,900 on April 27, 2015,
all subject to the continued employment or retirement of
the grantees. Certain RSUs granted in fiscal 2012 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 Common Stock on the date of grant. Other RSUs
granted in fiscal 2012 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, 2012 and activity during
the fiscal year then ended:
Weighted-Average
Grant Date
Shares Fair Value Per Share
(Shares in thousands)
Nonvested at June 30, 2011 2,870.3 $24.87
Granted 1,336.2 48.85
Vested (1,716.8) 24.31
Forfeited (96.8) 35.77
Nonvested at June 30, 2012 2,392.9 38.22
Market Share Unit
As of June 30, 2012, the Company had one outstanding
market share with a grant date fair value of $10.6 million
that was estimated using a lattice model with a Monte
Carlo simulation and the following assumptions: contrac-
tual life of 41 months, a weighted-average expected vola-
tility 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
Incentive 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.