Siemens 2005 Annual Report Download - page 204

204
A Black-Scholes option valuation model was developed for use in estimating the fair values of
options that have no vesting restrictions. Option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. The Company’s stock options
may have characteristics that vary significantly from traded options and changes in subjective
assumptions can materially affect the fair value of the option.
Stock appreciation rights (SAR’s)
Where local regulations restrict the grants of stock options in certain jurisdictions, the Company
grants SAR’s to employees exerciseable in cash only, as summarized in the table below:
Stock awards
In the first quarter of fiscal 2005, the Company introduced stock awards and phantom stock as
another means for providing stock-based compensation to members of the Managing Board and
other eligible employees. Stock awards are subject to a four year vesting period. Upon expiration
of the vesting period, the recipient receives Siemens shares without payment of consideration.
Stock awards are forfeited if the grantee’s employment with the Company terminates prior to the
expiration of the vesting period. During the vesting period, grantees are not entitled to divi-
dends. Stock awards may not be transferred, sold, pledged or otherwise encumbered. Stock
awards may be settled in newly issued shares of common stock of Siemens AG from the author-
ized or the conditional capital reserved for this purpose, Treasury Stock or in cash. The settlement
method will be determined by the Managing Board and the Supervisory Board.
Each fiscal year, the Company decides whether or not to grant Siemens stock awards. Siemens
stock awards may be granted only once a year within thirty days following the date of publication
of the business results for the previous fiscal year. The Supervisory Board decides annually after
the end of each fiscal year how many stock awards to grant to the Managing Board and the Man-
aging Board decides annually how many stock awards to grant to key executives and eligible
employees.
Management’s discussion and analysis
Year ended September 30,
2005 2004
Weighted Weighted
average average
exercise exercise
SAR’s price SAR’s price
Outstanding, beginning of period 198,850 € 73.25 – –
Granted 76,670 € 72.54 206,050 €73.25
Options forfeited (7,800) € 73.25 (7,200) €73.25
Outstanding, end of period 267,720* € 73.05 198,850 €73.25
Exercisable, end of period – – – –
* Thereof 76,670 SAR’s with a €72.54 exercise price and a weighted average remaining life of 4 years and 191,050 SAR’s
with a €73.25 exercise price and a weighted average remaining life of 3 years.