Philips 2012 Annual Report Download - page 166

30 12 Group financial statements 12.11 - 12.11
166 Annual Report 2012
The weighted average assumptions used to calculate the
postretirement benefit obligations other than pensions as of December
31 were as follows:
2011 2012
Discount rate 5.1% 4.5%
Compensation increase (where applicable) − −
The weighted average assumptions used to calculate the net cost for
years ended December 31:
2011 2012
Discount rate 6.6% 5.1%
Compensation increase (where applicable) − −
Assumed healthcare cost trend rates at December 31:
2011 2012
Healthcare cost trend rate assumed for next year 8.3% 7.5%
Rate that the cost trend rate will gradually reach 4.4% 5.2%
Year of reaching the rate at which it is assumed to
remain 2018 2019
Assumed healthcare trend rates can have a significant effect on the
amounts reported for the retiree medical plans. A one percentage-
point change in assumed healthcare cost trend rates would have the
following effects as at December 31:
2011 2012
increase
of 1%
decrease
of 1%
increase
of 1%
decrease
of 1%
Effect on total of
service and interest cost 1 (1) 1 −
Effect on postretirement
benefit obligation 16 (14) 15 (13)
Historical data
2008 2009 2010 2011 2012
Present value of defined-
benefit obligation 353 295 297 269 250
Fair value of plan assets − − − − −
(Deficit) (353) (295) (297) (269) (250)
Experience adjustments in
% on defined-benefit
obligations; (gains) and
losses 0.1% 4.9% (8.1%) (9.4%) (4.8%)
30 Share-based compensation
The purpose of the share-based compensation plans is to align the
interests of management with those of shareholders by providing
incentives to improve the Company’s performance on a long-term
basis, thereby increasing shareholder value.
The Company has granted the following:
• options on its common shares;
• rights to receive common shares in the future (restricted share
rights).
These options and restricted share rights are granted to members of
the Board of Management and other members of the Executive
Committee, executives and certain selected employees. The number
of granted options and restricted share rights depend on multipliers
which are based on the relative Total Shareholders Return of Philips in
comparison with a peer group of 11 multinationals.
Furthermore, in January 2012, as part of the Accelerate! program, the
Company has granted the following:
• options on its common shares (Accelerate! options);
• rights to receive common shares in the future (Accelerate! share
rights).
These Accelerate! options and share rights are granted to a group of
approximately 500 key employees below the level of Board of
Management.
USD-denominated options and share rights are granted to employees
in the United States only.
Share-based compensation costs were EUR 88 million (EUR 76 million,
net of tax), EUR 56 million (EUR 58 million, net of tax) and EUR 83
million (EUR 66 million, net of tax) in 2012, 2011 and 2010, respectively.
Option plans
Under the Company’s plans, options are granted at fair market value
on the date of grant.
The Company grants options that expire after 10 years. Generally,
these options vest after 3 years; however, a limited number of options
granted to certain employees of acquired businesses may contain
accelerated vesting. Except for the Accelerate! options, as of December
31, 2012 there are no outstanding options which contain non-market
performance conditions.
The fair value of the Company’s 2012, 2011 and 2010 option grants was
estimated using a Black-Scholes option valuation model and the
following weighted average assumptions:
2010 2011 2012
EUR-denominated
Risk-free interest rate 2.43% 2.89% 1.87%
Expected dividend yield 4.1% 3.3% 4.7%
Expected option life 6.5 yrs 6.5 yrs 6.5 yrs
Expected share price volatility 30% 30% 32%
USD-denominated
Risk-free interest rate 2.43% 2.78% 1.23%
Expected dividend yield 3.9% 3.6% 4.5%
Expected option life 6.5 yrs 6.5 yrs 6.5 yrs
Expected share price volatility 32% 34% 38%
The Company grants Accelerate! options that expire after 10 years.
The Accelerate! options ultimately vest on March 31, 2014. The actual
number of Accelerate! options that will ultimately vest is dependent on
achievement of the performance targets under the Accelerate!
program, which are based on the 2013 mid-term financial targets, and
provided that the employee is still employed with the Company.