Estee Lauder 2014 Annual Report Download - page 105

Download and view the complete annual report

Please find page 105 of the 2014 Estee Lauder annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 118

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118

THE EST{E LAUDER COMPANIES INC. 103
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
l
ess 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, 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 2,222.8 $52.68
Granted 1,313.1 66.05
Vested (1,248.3) 49.39
Forfeited (65.5) 59.91
Nonvested at June 30, 2014 2,222.1 62.21
Performance Share Units Based on Total
Stockholder Return
During fiscal 2013, the Company granted PSUs to an
executive of the Company with an aggregate target pay-
out of 162,760 shares of the Company’s Class A Common
Stock, subject to continued employment through the end
of the relative performance periods, which end June 30,
2015, 2016 and 2017. Such PSUs will be settled based
upon the Company’s relative total stockholder return
(“TSR”) over the relevant performance period as com-
pared to companies in the S&P 500 on July 1, 2012. No
settlement will occur if the Company’s TSR falls below a
minimum threshold, and up to an aggregate of 260,416
shares of the Company’s Class A Common Stock will be
issued depending on the extent to which the Company’s
TSR equals or exceeds the minimum threshold. The PSUs
are accompanied by dividend equivalent rights that will
be payable in cash upon settlement of the PSUs.
The grant date fair value of the PSUs of $11.0 million
was estimated using a lattice model with a Monte Carlo
simulation and the following assumptions for each perfor-
mance period, respectively: contractual life of 33, 45 and
57 months, average risk-free interest rate of 0.3%, 0.5%
and 0.7% and a dividend yield of 1.0%. Using the his-
torical stock prices and dividends from public sources,
the Company estimated the covariance structure of the
returns on S&P 500 stocks. The volatility for the Company’s
stock produced by this estimation was 32%. The average
risk-free interest rate is based on the U.S. Treasury strip
rates over the contractual term of the grant and the
dividend yield is based on historical experience.
Market Share Unit
During fiscal 2014, the Company had one outstanding
market share unit, which vested on June 30, 2014. The
market share unit had a grant date fair value of $10.6 mil-
lion that 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 assumption that is a
combination of both current and historical implied volatil-
ities from options on the underlying stock. The implied
volatilities were obtained from publicly available data
sources. The expected life was equal to the contractual term
of the grant. The average risk-free interest rate was based
on the U.S. Treasury strip rates over the contractual term
of the grant and the average dividend yield was based on
historical experience. In accordance with the terms of
the grant, the maximum award of 320,000 shares of the
Company’s Class A Common Stock are anticipated to
be issued, and related dividends to be paid, 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 last 20 trading days ending on June 30, 2014.
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 the
Company’s 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, 2014 and activity
during the fiscal year then ended:
Weighted-Average
Grant Date
Shares Fair Value Per Share
(Shares in thousands)
Outstanding at June 30, 2013 87.3 $33.27
Granted 10.5 70.68
Dividend equivalents 1.0 72.54
Converted — —
Outstanding at June 30, 2014 98.8 37.67
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 $2.4 million,
$3.0 million and $0.8 million as compensation expense to
reflect additional deferrals and the change in the market
value for fiscal 2014, 2013 and 2012, respectively.