Philips 2006 Annual Report Download - page 162

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Philips Annual Report 2006162
The fair value of the Company’s 2006, 2005 and 2004 option grants was estimated using a Black-Scholes option
valuation model and the following weighted average assumptions:
EUR-denominated
2004 2005 2006
Risk-free interest rate 3.33% 2.89% 3.63%
Expected dividend yield 1.8% 1.8% 1.8%
Expected option life 5 yrs 5 yrs 6 yrs
Expected stock
price volatility 48% 44% 39%
112 Group fi nancial statements
Notes to the group fi nancial statements
172 IFRS information 218 Company fi nancial statements
USD-denominated
2004 2005 2006
Risk-free interest rate 3.50% 3.84% 4.73%
Expected dividend yield 1.6% 1.8% 1.8%
Expected option life 5 yrs 5 yrs 6 yrs
Expected stock
price volatility 47% 43% 38%
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 subjective
assumptions, including the expected price volatility. The Company has based its volatility assumptions on historical
experience for a period that approximates the expected life of the options. The expected life of the options is also
based upon historical experience. The Company’s employee stock options have characteristics signifi cantly different
from those of traded options, and changes in the assumptions can materially affect the fair value estimate.
The following tables summarize information about Philips stock options as of December 31, 2006 and changes
during the year:
Fixed option plans
EUR-denominated
shares
weighted average
exercise price
weighted average
remaining contractual
term (in years)
aggregate intrinsic
value (in millions)
Outstanding at January 1, 2006 27,159,028 28.74
Granted 4,148,139 26.22
Exercised 950,900 18.44
Forfeited 1,214,029 29.72
Expired − −
Outstanding at December 31, 2006 29,142,238 28.68 6.1 90
Exercisable at December 31, 2006 20,359,927 30.98 5.2 44
The weighted average grant-date fair value of options granted during
2006, 2005, and 2004 was EUR 9.76, EUR 7.01, and
EUR 9.46, respectively.
The total intrinsic value of options exercised during 2006, 2005, and 2004 was EUR 8 million,
EUR nil, and EUR 12 million, respectively.