The Best Beer Company in a Better World - Anheuser-Busch InBev

Financial Report Annual Report 2008 | 97
Since the acceptance period of the options is 2 months, the fair value was determined as the average of the fair values calculated on a weekly
basis during the two months offer period.
Expected volatility is based on historical volatility calculated using 1 068 days of historical data. The Hull binomial model assumes that all
employees would immediately exercise their options if the AB InBev share price is 2.5 times above the exercise price. As a result, no single
expected option life applies.
The total number of outstanding options developed as follows :
Million options 2008 2007 2006
Options outstanding at 1 January 6.3 7.6 10.9
Options issued during the year 1.1 1.0 1.2
Options exercised during the year (1.2) (1.6) (3.4)
Options forfeited during the year (0.4) (0.7) (1.1)
Additional options granted as a result of the rights issue 3.0 - -
Options outstanding at 31 December 8.8 6.3 7.6
As a consequence of the rights issue that took place in November 2008, the exercise price and the number of options were adjusted according
to the ratio method proposed by Euronext-Liffe in order to compensate for the dilutive effect of the rights issue. The adjustment ratio is 0.6252.
The adjusted exercise price of the subscription rights equals the original exercise price multiplied by the adjustment ratio. The adjusted number
of subscription rights equals the original number of subscription rights divided by the adjustment ratio. As a result during the fourth quarter
of 2008, 3m additional options were granted to employees in order to compensate for the dilutive effect of the rights issue.
The range of exercise prices of the outstanding options is between 7.28 euro and 58.31 euro while the weighted average remaining contractual
life is 6.2 years.
Of the 8.8m outstanding options 4.1m options are vested at 31 December 2008.
The weighted average exercise price of the options is as follows :
Amounts in euro 2008 2007 2006
Options outstanding at 1 January 31.59 26.94 24.24
Granted during the period (pre rights issue) 55.27 53.92 39.29
Granted during the period (adjustment factor) 23.62 - -
Forfeited during the period 40.69 30.57 23.63
Exercised during the period 23.54 24.13 23.70
Outstanding at the end of the period 24.73 31.59 26.94
Exercisable at the end of the period 17.00 24.72 24.92
For share options exercised during 2008 the weighted average share price at the date of exercise was 31.49 euro.
Under an equivalent 5 year cliff vesting plan, AmBev has issued during the second quarter of 2008 0.8m options for which the fair value amounts
to approximately 25m euro. The fair value of the options and assumptions used in applying a binomial option pricing model for the 2008
AmBev grant are as follows :
Amounts in euro unless otherwise indicated 2008 2007 2006
Fair value of options granted 31.98 17.00 16.00
Share price 51.36 42.00 37.00
Exercise price 51.36 42.00 37.00
Expected volatility 33 % 26 % 30 %
Risk-free interest rate 12.50 % 10.60 % 14.47 %
As the AmBev options are dividend protected, the dividend yield used for the fair value calculation was 0 %.
During the second half of 2007, AmBev performed a reverse stock split in the ratio of 100 :1. Consequently the 2007 and 2006 figures have
been restated to consider the impact of this adjustment.