Air New Zealand 2008 Annual Report Download - page 40

AIR NEW ZEALAND
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AS AT 30 JUNE 2008
20. ISSUED CAPITAL (CONTINUED)
Long Term Incentive Plan (LTIP)
On 26 September 2007, 6,585,181 options with a fair value of $2.9 million were issued to executives under the LTIP. Total options outstanding under
the LTIP are 20,029,001 (30 June 2007:13,443,820). The unamortised fair value of outstanding LTIP options (measured at grant date) is $3.0 million
(30 June 2007: $1.8 million).
The options may be exercised at any time between three and five years after the date of issue (subject to compliance with insider trading restrictions and
the rules of the scheme), but may lapse if the participants leave the Group in certain specified circumstances.
The exercise price will be set three years after issue, and will be based on the Company share price at the issue date increased or decreased by the
percentage movement in a specified index over the three years, and decreased by any distributions made by the Company over the same period. The
specified index comprises the total shareholder return for the NZSX All Gross Index and the Dow Jones World Airline Total Return Index in 50:50
proportions.
The general principles underlying the Black Scholes option pricing model have been used to value these options using a Monte Carlo simulation
approach. The key inputs to this model for options granted in that year were as follows:
GROUP AND COMPANY
2008 2007
Weighted average share price (cents) 216 116
Expected volatility of share price (%) 35 37
Expected volatility of performance benchmark index (%) 13 13
Correlation of volatility indices 0.45 0.40
Expected life (years) 3.5 3.5
Risk free rate (%) 6.42 5.94
Expected dividend yield 3.7 4.3
Discount to reflect negotiability restrictions (%) 15 15
The exercise price will not be set until three years after issue date and has been modelled as a stochastic variable, using the volatility, correlation,
dividend yield and risk-free rate assumptions detailed above.
The volatility and correlation estimates were derived from measuring these parameters using historical data over the preceding three to five years. The
risk-free rate was based on the five year zero bond coupon yield implied from short to medium term yields for government bonds.
The expected life used in calculating the value of options was determined by analysis of the attrition rates and early exercise behaviour of staff in long
term incentive programmes in similar large corporates.
2001 Share Option Plan
The Company established the 2001 Executive Share Option Plan on 31 March 2001. The options vest in three tranches: 25 percent on the first
anniversary of the issue date, 25 percent on the second anniversary of the issue date, and 50 percent on the third anniversary of the issue date. Options
lapse if not exercised by the fifth anniversary of their vesting date, or on the anniversary of exit if the participants leave the Group in certain specified
circumstances.
Application of Treasury Stock method
Unallocated shares of the Air New Zealand Staff Share Schemes are accounted for under the Treasury Stock method, and deducted from Ordinary
Share capital on consolidation. The number of unallocated shares as at 30 June 2008 was 93 (30 June 2007: 88).
Kiwi Share
One fully paid special rights convertible share (the Kiwi Share) is held by the Crown. While the Kiwi Share does not carry any general Voting Rights, the
consent of the Crown as holder is required for certain prescribed actions of the Company as specified in the Constitution
Voting Rights
On a show of hands or by a vote of voices, each holder of Ordinary Shares has one vote. On a poll, each holder of Ordinary Shares has one vote for
each fully paid share.
All Ordinary Shares carry equal rights to dividend and equal distribution rights on wind up.
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