Philips 2013 Annual Report Download - page 175

11 Group financial statements 11.9 - 11.9
Annual Report 2013 175
Restricted shares and options were granted to members of the Board of
Management and other members of the Executive Committee, executives
and certain selected employees. Options were last granted in January
2013. Restricted shares are still granted to new employees or certain
selected employees.
Furthermore, in January 2012 and 2013, 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! shares).
These Accelerate! options and shares were granted to a group of
approximately 500 key employees below the level of Board of
Management in January 2012 and to the Board of Management in January
2013.
In May 2013 a new long-term incentive plan was approved at the Annual
General Meeting of Shareholders granting performance shares to
members of the Board of Management and other members of the
Executive Committee, executives and certain selected employees.
USD-denominated options, restricted and performance shares are
granted to employees in the United States only.
Share-based compensation costs were EUR 109 million (EUR 91 million,
net of tax), EUR 86 million (EUR 75 million, net of tax) and EUR 55 million
(EUR 57 million, net of tax) in 2013, 2012 and 2011, respectively.
Option plans
Under the Company’s plans, options are granted at fair market value on
the date of grant.
The Company granted options that expire after 10 years. Generally, these
options vest after 3 years, provided the grantee is still employed with the
Company. A limited number of options granted to certain employees of
acquired businesses may contain accelerated vesting. As of December 31,
2013 there are no non-vested options which contain non-market
performance conditions.
The fair values of the Company’s 2013, 2012 and 2011 option grants were
estimated using a Black-Scholes option valuation model and the
following weighted average assumptions:
2011 2012 2013
EUR-denominated
Risk-free interest rate 2.89% 1.87% 1.20%
Expected dividend yield 3.3% 4.7% 4.5%
Expected option life 6.5 yrs 6.5 yrs 6.5 yrs
Expected share price
volatility 30% 32% 33%
USD-denominated
Risk-free interest rate 2.78% 1.23% 1.32%
Expected dividend yield 3.6% 4.5% 4.6%
Expected option life 6.5 yrs 6.5 yrs 6.5 yrs
Expected share price
volatility 34% 38% 39%
The fair value of the Company’s 2013 and 2012 Accelerate! option grants
were estimated using a Black-Scholes option valuation model and the
following assumptions:
2012 2013
EUR-denominated
Risk-free interest rate 1.52% 0.89%
Expected dividend yield 4.3% 3.9%
Expected option life 6.5 yrs 6.5 yrs
Expected share price volatility 32% 32%
USD-denominated
Risk-free interest rate 1.19% −
Expected dividend yield 4.0% −
Expected option life 6.5 yrs −
Expected share price volatility 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 equal to 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 significantly
dierent from those of traded options, and changes in the assumptions
can materially aect the fair value estimate.
The following tables summarize information about the Company’s options
as of December 31, 2013 and changes during the year:
Option plans (excluding Accelerate! options)
EUR-denominated
options
weighted average
exercise price
Outstanding at January 1, 2013 23,109,265 21.43
Granted 35,193 22.28
Exercised 2,664,550 18.45
Forfeited 1,807,077 23.74
Expired 15,003 22.12
Outstanding at December 31, 2013 18,657,828 21.63
Exercisable at December 31, 2013 11,657,060 23.99
The exercise prices range from EUR 12.63 to EUR 32.04. The weighted
average remaining contractual term for options outstanding and options
exercisable at December 31, 2013, was 5.3 years and 3.8 years,
respectively. The aggregate intrinsic value of the options outstanding and
options exercisable at December 31, 2013, was EUR 104 million and EUR 41
million, respectively.
The weighted average grant-date fair value of options granted during
2013, 2012, and 2011 was EUR 4.21, EUR 2.84 and EUR 4.82, respectively.
The total intrinsic value of options exercised during 2013, 2012, and 2011
was approximately EUR 15 million, EUR 3 million and EUR 1 million,
respectively.