Air New Zealand 2011 Annual Report Download - page 46

22. ISSUED CAPITAL (CONTINUED)
Long Term Incentive Plan (LTIP)
On 17 September 2010, 11,884,690 options with a fair value of $2.8 million were issued to executives under the LTIP (18 September
2009: 11,923,525 options with a fair value of $3.0 million). Total options outstanding under the LTIP are 42,791,447 (30 June 2010:
40,722,469). The unamortised fair value of outstanding LTIP options (measured at grant date) is $3.3 million (30 June 2010: $3.6 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
2011 2010 2009 2008 2007
Weighted average share price (cents) 129 124 114 216 116
Expected volatility of share price (%) 37 40 37 35 37
Expected volatility of performance benchmark index (%) 17 17 15 13 13
Correlation of volatility indices 0.45 0.50 0.45 0.45 0.40
Contractual life (years) 5.0 5.0 5.0 5.0 5.0
Risk free rate (%) 4.72 5.50 5.90 6.42 5.94
Expected dividend yield 5.4 5.2 7.5 3.7 4.3
Discount to reflect negotiability restrictions (%) 25 25 25 15 15
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 17 September 2010, 4,067,797 options with a fair value of $1.0 million were issued to the Chief Executive Officer under the CEO
Option Plan (30 June 2010: 3,870,968 options with a fair value of $1.0 million). Total options outstanding under the CEO Option Plan
are 12,861,842 (30 June 2010: 8,794,045). The unamortised fair value of outstanding CEO Option Plan options (measured at grant
date) is $1.3 million (30 June 2010: $1.2 million).
The options may be exercised at any time between two to four years after the date of issue (2010: three to five 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 two years after issue (2010: 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 two years (2010: 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.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AS AT 30 JUNE 2011
AIR NEW ZEALAND ANNUAL FINANCIAL RESULTS 2011