Siemens 2005 Annual Report Download - page 201

201
Debt
The fair value of debt is estimated by discounting future cash flows using rates currently avail-
able for debt of similar terms and remaining maturities. As of September 30, 2005 and 2004,
the fair value and carrying amount of debt is as follows:
27 Stock-based compensation
In fiscal 2005, the Company introduced stock awards as another type of compensation. Stock
awards granted in fiscal 2005 resulted in a significant reduction in the number of stock options
awarded as compared with fiscal 2004.
As of October 1, 2003, the Company adopted the fair value recognition provisions of SFAS 123,
Accounting for Stock-Based Compensation using the prospective method set forth in SFAS 148,
Accounting for Stock-Based Compensation – Transition and Disclosure for all awards granted,
modified or settled after October 1, 2003. Awards granted before October 1, 2003 continue to be
accounted for under the recognition and measurement provisions of APB Opinion No. 25,
Accounting for Stock Issued to Employees, and related Interpretations.
Stock Option Plans
Description of plans – 1999 Siemens Stock Option Plan
As part of a stock option plan for members of the Managing Board, key executives and other
eligible employees, the Company’s shareholders authorized the Managing Board on February 18,
1999 to distribute non-transferable options exercisable for up to an aggregate of 10 million com-
mon shares. The authority to distribute options under this plan would have originally expired
on February 18, 2004. With the ratification by Siemens shareholders of the 2001 Siemens Stock
Option Plan (further details see below), the 1999 Siemens Stock Option Plan (the 1999 Plan) has
been terminated and further options have not been granted.
Under the 1999 Plan, the exercise price is equal to the average market price of Siemens’ stock
during the five days preceding the date the options were granted. The options are exercisable
within the five years following a holding period of two years if Siemens AG stock price outper-
forms the Dow Jones Stoxx-Index by at least two percentage points on five consecutive days. This
percentage applies to the first year of the five-year option exercise period, and increases by 0.5
percentage points in each subsequent year. As a result of such performance requirements, the
plan has been accounted for as a variable plan under APB Opinion No. 25.
The terms of the plan allow the Company, at its discretion upon exercise of the option, to offer
optionees settlement of the options in either newly issued shares of common stock of Siemens AG
from the Conditional Capital reserved for this purpose, treasury stock or cash. The alternatives
offered to optionees are determined by the Managing Board in each case as approved by the
Supervisory Board. Compensation in cash shall be equal to the difference between the exercise
price and the average market price of the Company’s stock on the five trading days preceding the
exercise of the stock options.
Notes to Consolidated Financial Statements
Consolidated Financial Statements Notes to Consolidated Financial Statements
(in millions of €, except where otherwise stated
and per share amounts)
September 30,
2005 2004
Fair value 12,994 11,663
Carrying amount 12,435 11,219