Philips 2005 Annual Report Download - page 167

Philips Annual Report 2005 167
The fair value of the Company’s 2005, 2004 and 2003 option grants
was estimated using a Black-Scholes option valuation model and the
following weighted average assumptions:
2003 2004 2005
(EUR-
denominated)
Risk-free interest rate 3.49% 3.33% 2.89%
Expected dividend yield 1.6% 1.8% 1.8%
Expected option life 5 yrs 5 yrs 5 yrs
Expected stock price volatility 56% 48% 44%
2003 2004 2005
(USD-
denominated)
Risk-free interest rate 3.08% 3.50% 3.84%
Expected dividend yield 1.7% 1.6% 1.8%
Expected option life 5 yrs 5 yrs 5 yrs
Expected stock price volatility 51% 47% 43%
The assumptions were used for these calculations only and do not
necessarily represent an indication of Management’s expectations of
future developments.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions, including the
expected stock price volatility. The Company’s employee stock options
havecharacteristicssignicantlydifferentfromthoseoftradedoptions,
and changes in the subjective input assumptions can materially affect the
fair value estimate.
Asfrom2002,theCompanygrantedxedstockoptionsthatexpire
businessescontainacceleratedvesting.Inprioryears,xedandvariable
representingbenecialeconomicandvotinginterestsinalikenumber
prospectivelyforallemployerawardsgranted,modied,orsettledafter
outstandingandunvestedawardsineachperiod,amountedtoaprot
ofEUR2,856millionandEUR2.28respectivelyfor2005,aprotof
EUR2,773millionandEUR2.17for2004,andaprotofEUR588million
canreceivenovaluenorderiveanybenetfromholdingthesestock
anincreaseinstockpricewouldbenetallshareholderscommensurately.
3434
3535
34