Siemens 2006 Annual Report Download - page 220

Notes to Consolidated Financial Statements
(in millions of €, except where otherwise stated and per share amounts)
216
II. Liability settled awards
Stock appreciation rights (SAR’s)
Where local regulations restrict the grant of stock options in certain jurisdictions, the
Company grants SAR’s to employees under the same conditions as the 2001 Siemens Stock
Option Plan except that SAR’s are exercisable in cash only. Details on SAR’s activity and
weighted average exercise prices are summarized in the table below:
Since October 1, 2005, SAR’s are remeasured to fair value at each reporting date until the
award is settled. The fair value of SAR’s is based on a Black-Scholes option pricing model.
In fiscal 2006, the expected volatility is based on historical volatility of Siemens shares,
implied volatility for traded Siemens options with similar terms and features, and certain oth-
er factors. The expected term is derived by applying the simplified method and is determined
as the average of the vesting term and the contractual term. The risk-free interest rate is based
on applicable governmental bonds. Changes in subjective assumptions can materially affect
the fair value of the SAR’s.
Phantom stock
Where local regulations restrict the grants of stock awards in certain jurisdictions, the Com-
pany grants phantom stock to employees under the same conditions as the Siemens stock
awards, except that grantees receive the share prices’ equivalent value in cash only at the end
of the four year vesting period. In fiscal 2005, 28,628 phantom stock rights were granted and
391 phantom stock rights forfeited, resulting in a balance of 28,237 phantom stock rights as of
September 30, 2005. In fiscal 2006, 33,153 phantom stock rights were granted and 805 phan-
tom stock rights forfeited, resulting in a balance of 60,585 phantom stock rights as of Septem-
ber 30, 2006. None of the phantom stock rights were vested as of September 30, 2006.
Since October 1, 2005, phantom stock rights are remeasured to fair value at each reporting
date until the award is settled.
Year ended September 30,
2006 2005
Weighted Weighted
average average
exercise exercise
SAR’s price SAR’s price
Outstanding, beginning of period 267,720 € 73.05 198,850 € 73.25
Granted 97,270 € 74.59 76,670 € 72.54
SAR’s exercised (2,300) € 73.25 – –
SAR’s forfeited (12,790) € 73.20 (7,800) € 73.25
Outstanding, end of period 349,900*€ 73.47 267,720 € 73.05
Exercisable, end of period 181,950 € 73.25 – –
* Thereof 72,420 SAR’s with a €72.54 exercise price and a weighted average remaining life of 3.2 years, 181,950
SAR’s with a €73.25 exercise price and a weighted average remaining life of 2.2 years and 95,530 SARs with a
€74.59 exercise price and a weighted average remaining life of 4.2 years.