LOREAL_Registration_Document_2017

2017 Consolidated Financial Statements* NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Stock subscription or purchase options - Free shares 5.5.

ACCOUNTING PRINCIPLES In accordance with the requirements of IFRS 2 “Share-based payment”, the value of options or free shares granted as calculated at the grant date is expensed in the income statement over the vesting period, which is generally 5 years for purchase options and 4 years for free shares. The fair value of stock options is determined using the Black & Scholes model. This model takes into account the characteristics of the plan such as the exercise price and exercise period, and market data at the grant date such as the risk-free rate, share price, volatility, expected dividends and behavioural assumptions regarding beneficiaries.

The fair value of free shares corresponds to the value of the share at the grant date, less dividends expected to be paid during the vesting period. The cost of the additional 2-year holding period applicable to French residents, for plans prior to 1 January 2016, is determined based on the interest rate granted to the employee, considered equivalent to the rate which would be granted by a bank to a private individual customer with an average financial profile. The impact of IFRS 2 on profit for the period is booked on the Selling , general and administrative expenses line of the income statement at Group level, and is not allocated to the Divisions or geographic zones.

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Share subscription or purchase options a) The table below sets out data concerning option plans in force at 31 December 2017.

Exercise period

Number of options not yet exercised

Grant date 30.11.2007 25.03.2009 27.04.2010 22.04.2011

Number of options

from

to

Exercise price

4,000,000 3,650,000 4,200,000 1,470,000

-

01.12.2012 26.03.2014 28.04.2015 23.04.2016

30.11.2017 25.03.2019 27.04.2020 22.04.2021

€91.66 €50.11 €80.03 €83.19

333,148

1,292,620

608,007

All plans have a 5-year exercise period and no performance-related conditions, except the 22 April 2011 plan (for all participants) and the 27 April 2010 and 25 March 2009 plans (for members of the Management Committee). All of the performance conditions of these plans have been definitively fulfilled. The fair value of options is determined using the Black & Scholes method based on the following assumptions:

Subscription options

November 2007

March 2009

April 2010

April 2011

Risk-free rate of return Expected life span Expected volatility Expected dividends

4.01% 7 years 23.00% 1.24% €94.93 €91.66 €25.88

3.15% 7 years 31.95% 2.83% €50.94 €50.11 €12.16

2.83% 7 years 23.53% 1.86% €80.50 €80.03 €17.17

3.42% 8 years 22.60% 2.10% €85.68 €83.19 €18.58

Share price

Exercise price

Fair value

Expected volatility is equal to the implied volatility of the options listed on MONEP at the grant dates. As from 2007, in order to mitigate the effects of atypical phenomena, the volatility used corresponds to the average between implied volatility at the grant date and historic volatility over the expected life span of the option. The expected life span has been adjusted to take account of behavioural assumptions relating to the beneficiaries.

REGISTRATION DOCUMENT / L'ORÉAL 2017

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