Air New Zealand 2010 Annual Report Download - page 43

21. ISSUED CAPITAL (CONTINUED)
Long Term Incentive Plan (LTIP)
On 18 September 2009, 11,923,525 options with a fair value of $3.0 million were issued to executives under the LTIP (19 September 2008:
16,095,955 options with a fair value of $3.1 million). Total options outstanding under the LTIP are 40,722,469 (30 June 2009: 35,815,153).
The unamortised fair value of outstanding LTIP options (measured at grant date) is $3.6 million (30 June 2009: $3.5 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
2010 2009
Weighted average share price (cents) 124 114
Expected volatility of share price (%) 40 37
Expected volatility of performance benchmark index (%) 17 15
Correlation of volatility indices 0.50 0.45
Contractual life (years) 5.0 5.0
Risk free rate (%) 5.50 5.90
Expected dividend yield 5.2 7.5
Discount to reflect negotiability restrictions (%) 25 25
The exercise price 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.
CEO Option Plan
On 18 September 2009, 3,870,968 options with a fair value of $1.0 million were issued to the Chief Executive Officer under the CEO Option Plan (30
June 2009: 4,923,077 options with a fair value of $1.0 million). Total options outstanding under the CEO Option Plan are 8,794,045 (30 June 2009:
4,923,077). The unamortised fair value of outstanding CEO Option Plan options (measured at grant date) is $1.2 million (30 June 2009: $0.8 million).
The options may be exercised at any time between three to five years after the date of issue (2009: four and six years after the date of issue) for the
CEO Option Plan (subject to compliance with insider trading restrictions and the rules of the scheme), but may lapse if the participant leaves the Group
in certain specified circumstances.
The exercise price will be set three years after issue (2009: four 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 (2009: four 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.
AIR NEW ZEALAND
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AS AT 30 JUNE 2010
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