Estee Lauder 2013 Annual Report Download - page 175

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 following is a summary of the per-share weighted-
average grant date fair value of stock options granted and
total intrinsic value of stock options exercised:
YEAR ENDED JUNE 30 2013 2012 2011
(In millions, except per share data)
Per-share weighted-average
grant date fair value of
stock options granted $20.30 $17.41 $18.93
Intrinsic value of stock
options exercised $145.8 $154.0 $178.1
20
1
3
$
20.3
0
$
145.
8
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 2013 2012 2011
Weighted-average expected
stock-price volatility 34% 35% 31%
Weighted-average expected
option life 8 years 8 years 8 years
Average risk-free interest rate 1.2% 1.7% 2.2%
Average dividend yield 1.0% 1.0% 1.1%
2
013
34
%
8
y
ear
s
1.2
%
1.0
%
The Company uses a weighted-average expected stock-
price volatility assumption that is a combination of
both current and historical implied volatilities of the
underlying stock. The implied volatilities were obtained
from publicly available data sources. For the weighted-
average expected option life assumption, the Company
considers the exercise behavior of past grants and models
the pattern of aggregate exercises. The average risk-free
interest rate is based on the U.S. Treasury strip rate for the
expected term of the options and the average dividend
yield is based on historical experience.
Performance Share Units
During fiscal 2013, the Company granted approximately
250,900 PSUs, which will be settled in stock subject to
the achievement of the Company’s net sales, diluted net
earnings per common share and return on invested capi-
tal goals for the three fiscal years ending June 30, 2015, all
subject to the continued employment or retirement 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 compensation cost of
the PSU is subject to adjustment based upon the attain-
ability of these target goals. No settlement will occur for
results below the applicable minimum threshold of a tar-
get 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 2013 are not accompanied by divi-
dend 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 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 perfor-
mance period. Approximately 548,700 shares of Class A
Common Stock are anticipated to be issued, relative to
the target goals set at the time of issuance, in settlement
of the 365,900 PSUs that vested as of June 30, 2013.
In September 2012, approximately 495,900 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 330,600
PSUs which vested as of June 30, 2012.
The following is a summary of the status of the
Company’s PSUs as of June 30, 2013 and activity during
the fiscal year then ended:
Weighted-Average
Grant Date
Shares Fair Value Per Share
(Shares in thousands)
Nonvested at June 30, 2012 625.9 $37.31
Granted 250.9 59.09
Vested (365.9) 29.31
Forfeited — —
Nonvested at June 30, 2013 510.9 53.73
Restricted Stock Units
The Company granted approximately 1,425,000 RSUs
during fiscal 2013 which, at the time of grant, were sched-
uled to vest as follows: 637,800 on October 31, 2013,
2,900 on January 8, 2014, 336,100 on October 31, 2014,
6,000 on January 8, 2015, 32,600 on June 30, 2015,
4,900 on September 4, 2015, 206,900 on November 2,
2015, 124, 300 on November 16, 2015, 8,500 on January 8,
2016, 32,500 on June 30, 2016 and 32,500 on June 30,
2017, all subject to the continued employment or retire-
ment of the grantees. Certain RSUs granted in fiscal 2013
THE EST{E LAUDER COMPANIES INC. 173