Volvo 2003 Annual Report Download - page 62

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The Volvo Group
Notes to consolidated financial statements
However, if the holder’s employment with Volvo is terminated for any
reason other than dismissal or the holder’s resignation, the options
may be exercised in part in relation to how large part of the vesting
period the holder has been employed. If the holder retires during the
vesting period, he or she may exercise the full number of options.
New stock-based incentive program
The Board of Directors has proposed to the Annual General Meeting
to approve a new stock-based incentive program for senior execu-
tives within the Volvo Group that will replace the present stock
option program. Under the program, a total of maximum 110,000
Volvo shares can be allotted to approximately 165 senior executives.
The number of shares to be allotted is proposed to depend upon the
fulfillment of certain financial goals during the financial year 2004.
Assuming said goals are fulfilled in full and that the Volvo share
prices is SEK 243 at the time of allotment, Volvos cost for the pro-
gram including social fees will be around SEK 35 M. The Board has
furthermore proposed to the Annual General Meeting that the stock-
based incentive programme may be hedged through transfer of
Volvo’s own shares.
Programs from prior years This year’s program
2001/ 2004
1999/ 2004, 2000/ 2005, employee
call options call options stock options 2003/ 2008 employee stock options
Financial instruments number number number number value benefit
Board Chairman – – – – – –
CEO 5,045 8,821 13,600 50,000 1,600,000 1,600,000
Other senior executives 41,052 108,108 82,645 1,000,000 32,000,000 32,000,000
Total 46,097 116,929 96,245 1,050,000 33,600,000 33,600,000
Total number of
outstanding options
Sum m ary of Dec 31, Dec 31, Excercise Term of the Value/ Vesting,
opt ion program s Allotment date 2002 2003 price options option years
May 18, 1999–
1998, call options 1May 5, 1999 58,659 46,097 290.70 May 4, 2004 68.70 n/ a
Apr 28, 2000–
1998, call options 2April 28, 2000 119,956 116,929 313.50 Apr 27, 2005 55.75 n/ a
Mar 31, 2002–
2000, employee stock options 3Jan 12, 2000 595,000 — 239.35 Mar 31, 2003 35.00 2
May 4, 2003–
2000, employee stock options 3May 4, 2001 163,109 96,245 159.00 May 3, 2004 22.00 2
May 2, 2006–
2002, employee stock options 3May 2, 2003 — 1,050,000 163.00 May1, 2008 32.00 3
1The call options gives the holder the right to acquire 1.03 Series B Volvo
shares for each option held from a third party. The price of the options is
based on a market valuation by Trygg-Hansa Livförsäkrings AB. The num-
ber of options corresponds to a part of the executive’s variable salary
earned. The options were financed 50% by the Company and 50% from
the option-holder’s variable salary.
2The options gives the holder the right to acquire one Series B Volvo share
for each option held from a third party. The price of the options is based on
market valuation by UBS Warburg. The number of options corresponds to
apart of the executive’s variable salary earned. The options were financed
50% by the Company and 50% from the option holder’s variable salary.
3In January 2000, a decision was made to implement a new incentive pro-
gram for senior executives within the Volvo Group in the form of so-called
employee stock options. The decision covers allotment of options for 2000,
2001 and 2002. The executives have not made any payment for the
options. The employee stock options gives the holders the right to exercise
their options or alternatively receive the difference between the actual price
at that time and the exercise price determined at allotment. The theoretical
value of the options at allotment was set using the Black & Scholes pricing
model for options. Volvo has, as regards the options alloted in 2000 and
2001, hedged the commitments (including social costs) relating to a future
increase in share price, through a Total Return Swap. Should the share price
be lower than the exercise price at the closing date, Volvo will pay the
swap-holder the difference between the actual share price and the exercise
price at that time for each outstanding option. The Board has proposed to
the Annual General Meeting that options allotted in 2003 may be hedged
through transfer of Volvos own shares.
Renewal of the personnel stock options program for 2003
The Board of AB Volvo decided to renew the personnel stock
options program established in 2000, and renewed in 2001 and
2002, and through which senior executives in the Volvo Group are
allotted options on B shares in AB Volvo. The size of the allotment is
determined by how well certain financial goals for 2003 are
achieved. There will be no allotment under the program in 2004.
All obligations related to the employee stock option plans, includ-
ing the Total Return Swaps, are marked to market on a continuing
basis and any change in the obligation is recorded in the income
statement. In 2003, the cost for the employee stock option plans
amounted to 65 (cost 36, income 15). At December 31, 2003 the
provision related to these options amounted to 74.