TomTom 2011 Annual Report Download - page 68

TomTom Annual Report and Accounts 2011
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Notes to the Consolidated Financial Statements | continued
22. SHARE-BASED COMPENSATION (CONTINUED)
A summary of the group’s stock option plans and the movements during the years 2011 and 2010 are presented below:
Option plans 2011
Weighted
average exercise
price 2010
Weighted
average exercise
price
Outstanding at the beginning of the year 17,188,562 11.06 12,159,280 13.81
Granted 3,164,950 6.11 6,013,500 5.32
Exercised – 84,428 5.72 – 90,011 5.72
Forfeited – 3,544,335 15.31 – 894,207 16.00
OUTSTANDING AT THE END OF THE YEAR 16,724,749 9.25 17,188,562 11.06
Performance share plan
In 2011 the group introduced a new performance share plan for employees. The performance shares are conditional on the employee
completing three years’ service (the vesting period). On 31 December 2011 the liability with regard to the performance share plan was
€ 0.3 million (2010: €2.4 million). The performance shares granted in 2008 have vested and were paid out to the employees in 2011.
The following table provides the movement in the number of performance shares granted in 2008 and 2011.
Share plans 2011 2010
Outstanding at the beginning of the year 363,000 563,860
Exercised – 280,390 – 161,872
Granted 571,800 0
Cancelled – 24,833 0
Forfeited – 94,910 – 38,988
OUTSTANDING AT THE END OF THE YEAR 534,667 363,000
Restricted stocks plan
The group introduced in 2011 a restricted stock plan to retain a selected group of young talented employees. Each restricted-stock unit
gives the right to receive one TomTom share after a three-year vesting period and qualifi es as an equity-settled plan. The costs that arise
from this plan are spread over the vesting period and have been determined based on TomTom’s share price on the grant date. Total 2011
stock compensation expenses charged to the stock compensation reserve for this plan amounted to €60 thousand. As this plan is not
signifi cant, no further disclosures are provided.
Valuation assumptions
The fair value of the performance shares granted in 2008 and 2011 was determined by a valuation model. The model contains several
input variables, including the share price at reporting date and an expected leavers’ percentage. The fair value is calculated at each
reporting period.
The fair value of the share options granted in May 2011 and May 2010 was determined by the binomial tree model. This model contains
the input variables, including the risk-free interest rate, volatility of the underlying share price, exercise price, and share price at the date
of grant. The fair value calculated is allocated on a straight-line basis over the vesting period, based on the group’s estimate of equity
instruments that will eventually vest.
The input into the share option valuation model is as follows:
2011 2010
Share price at grant date (€) 6.04 5.48
Weighted average exercise price (€) 6.08 – 6.20 5.32 – 5.48
Weighted average expected volatility 50% 55%
Expected expiration date 9 May 2018 12 May 2017
Weighted average risk free rate 2.82% 2.42%
Expected dividends Zero Zero
The option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Volatility is
determined using industry benchmarking for listed peer group companies, as well as the historic volatility of the TomTom NV stock.
The group’s employee stock options have characteristics signifi cantly different from those of traded options, and changes in the subjective
input assumptions can materially affect the fair value estimate.