Mercedes 2006 Annual Report Download - page 197

Consolidated Financial Statements | Notes to the Consolidated Balance Sheets | 181
For the year ended December 31, 2006, the Group recognized
compensation expense on stock options (before taxes) of €38
million (2005: €87 million; 2004: €119 million). The correspond-
ing tax benefit amounts to €15 million (2005: €33 million;
2004: €45 million).
The total intrinsic value for options exercised in 2006 (as a
difference between share price at exercise date and reference
price) amounts to €141 million (2005: €61 million; 2004: -).
The total fair value recognized in the 2006 consolidated balance
sheet for options vested in 2006 is €127 million (2005: €128
million; 2004: €72 million).
The fair value of the DaimlerChrysler stock options issued in
2004 was measured at the grant date (beginning of April) based
on a modified Black-Scholes option-pricing model, which con-
siders the specific terms of issuance. The options granted to the
Board of Management in 2004 and for which – according to the
recommendations of the German Corporate Governance Code –
the Presidential Committee can impose a limit or reserve the
right to impose such a limit in the case of exceptional and unpre-
dictable developments, are calculated with the intrinsic value
at December 31. The table below presents the underlying assump-
tions as well as the resulting fair values and total values
(in millions of €):
Unearned compensation expense (before taxes) of all outstand-
ing and non-vested stock options as of December 31, 2006,
that are not subject to a possible limitation according the recom-
mendation of the German Corporate Governance Code, totals
€4 million (2005: €35 million; 2004: €125 million). This €4 million
expense is expected to be recorded in the first quarter of 2007.
Stock appreciation rights plans. In 1999, DaimlerChrysler
established a stock appreciation rights plan (the “SAR Plan 1999”)
which provides eligible employees of the Group with the right
to receive cash equal to the appreciation of DaimlerChrysler ordi-
nary shares subsequent to the date of grant. The stock appre-
ciation rights granted under the SAR Plan 1999 vest in equal
installments on the second and third anniversaries from the
date of grant. All unexercised SARs expire ten years from the grant
date. The exercise price of an SAR is equal to the fair market
value of DaimlerChrysler’s ordinary shares on the date of grant.
On February 24, 1999, the Group issued 11.4 million SARs at
an exercise price of €89.70 each (US $98.76 for Chrysler employ-
ees), of which 6.2 million SARs are outstanding and exercisable
at December 31, 2006.
As discussed above (see “Stock option plans”), in the second
quarter of 1999 DaimlerChrysler converted all options granted
under its existing stock option plans from 1997 and 1998 into
SARs.
In conjunction with the consummation of the merger between
Daimler-Benz and Chrysler in 1998, the Group implemented an
SAR plan through which 22.3 million SARs were issued at an
exercise price of US $75.56 each, of which 4.9 million SARs are
outstanding and exercisable at December 31, 2006. The initial
grant of SARs replaced Chrysler fixed stock options that were
converted to DaimlerChrysler ordinary shares upon the
consummation of the merger. SARs which replaced stock options
that were exercisable at the time of the consummation of the
merger were immediately exercisable at the date of grant. SARs
related to stock options that were not exercisable at the date
of consummation of the merger became exercisable in two install-
ments; 50% on the six-month and 50% on the one-year anniver-
saries of the consummation date.
A summary of the activity related to the Group’s SAR plans as
of and for the years ended December 31, 2006, 2005, and 2004,
is presented below:
4.4%
33%
2.6%
3
€7.85
131.9
Expected dividend yield
Expected volatility
Risk-free interest rate
Expected lives (in years)
Fair value per option
Total fair value (in millions of €)
2004
28.0
–
–
(10.4)
17.6
17.6
76.65
–
–
71.66
75.53
75.53
32.5
–
–
(4.5)
28.0
28.0
71.37
–
–
67.16
76.65
76.65
36.3
–
–
(3.8)
32.5
32.5
74.24
–
–
72.54
71.37
71.37
2004
Weighted
average
exercise price
Number
of SARs
2005
Weighted
average
exercise price
Number
of SARs
2006
Weighted
average
exercise price
Number
of SARs
Outstanding at beginning of year
Granted
Exercised
Forfeited
Outstanding at year-end
SARs exercisable at year-end
(SARs in millions; per share amounts in €)