Estee Lauder 2014 Annual Report Download - page 104

102 THE EST{E LAUDER COMPANIES INC.
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 weight-
ed-average grant date fair value of stock options granted
and total intrinsic value of stock options exercised:
YEAR ENDED JUNE 30 2014 2013 2012
(In millions, except per share data)
Per-share weighted-average
grant date fair value of
stock options granted $23.13 $20.30 $17.41
Intrinsic value of stock
options exercised $104.7 $145.8 $154.0
20142014
$23.13$23.13
$104.7$104.7
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 2014 2013 2012
Weighted-average expected
stock-price volatility 33% 34% 35%
Weighted-average expected
option life 7 years 8 years 8 years
Average risk-free interest rate 2.5% 1.2% 1.7%
Average dividend yield 1.1% 1.0% 1.0%
20142014
33%33%
7 years7 years
2.5%2.5%
1.1%1.1%
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 exer-
cise 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 2014, the Company granted approximately
291,000 PSUs, which will be settled in stock subject to the
achievement of the Company’s net sales, diluted net earn-
ings per common share and return on invested capital goals
f or the three fiscal years ending June 30, 2016, all subject to
the continued employment or retirement of the grantees.
Settlement will be made pursuant to a range of opportu-
nities 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 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 accom-
panied by dividend equivalent rights that will be payable
in cash upon settlement of the PSU. Other PSUs granted in
fiscal 2014 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 o f
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 performance period. Approximately
376,500 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 259,700 PSUs that vested as
of June 30, 2014. In September 2013, approximately
548,800 shares of the Company’s Class A Common Stock
were issued and related accrued dividends were paid, rel-
ative to the target goals set at the time of issuance, in settle-
ment of 365,900 PSUs which vested as of June 30, 2013.
The following is a summary of the status of the
Company’s PSUs as of June 30, 2014 and activity during
the fiscal year then ended:
Weighted-Average
Grant Date
Shares Fair Value Per Share
(Shares in thousands)
Nonvested at June 30, 2013 510.9 $53.73
Granted 291.0 67.38
Vested (259.7) 48.57
Forfeited (3.6) 63.17
Nonvested at June 30, 2014 538.6 63.53
Restricted Stock Units
The Company granted approximately 1,313,100 RSUs dur-
ing fiscal 2014 which, at the time of grant, were scheduled
to vest as follows: 300 in fiscal 2014, 478,400 in fiscal
2015, 494,600 in fiscal 2016, 336,800 in fiscal 2017 and
3,000 in fiscal 2018. All RSUs are subject to the continued
employment or retirement of the grantees. Certain RSUs
granted in fiscal 2014 are accompanied by dividend
equivalent rights that will be payable in cash upon settle-
ment 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 2014 are