Air New Zealand 2014 Annual Report Download - page 42

AIR NEW ZEALAND ANNUAL FINANCIAL RESULTS 201440
24. ISSUED CAPITAL (CONTINUED)
Long Term Incentive Plan (LTIP)
On 20 September 2013, 16,473,959 options with a fair value of $3.3 million were issued to executives under the LTIP (21 September
2012: 21,610,275 options (issue 1) with a fair value of $4.0 million; 21 December 2012: 4,000,000 options (issue 2) with a fair value
of $1,112,000). Total options outstanding under the LTIP are 64,051,345 (30 June 2013: 66,837,243). The unamortised fair value of
outstanding LTIP options (measured at grant date) is $4.5 million (30 June 2013: $5.0 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 2013
issue 2 options may be exercised at any time between 21 September 2015 and 21 September 2017 (subject to compliance with insider
trading restrictions and the rules of the scheme).
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
Bloomberg World Airline Total Return Index (adjusted for dividends) 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
2014
ISSUE 1
2013
ISSUE 2
2013 2012 2 011 2010
Weighted average share price (cents)
Expected volatility of share price (%)
Expected volatility of performance benchmark index (%)
Correlation of volatility indices
Contractual life (years)
Risk free rate (%)
Expected dividend yield
Discount to reflect negotiability restrictions (%)
139
27
15
0.25
5.0
4.40
5.8
25
112
30
15
0.20
5.0
3.10
4.9
25
146
30
15
0.25
4.8
3.30
3.8
25
111
35
17
0.45
5.0
4.09
5.0
25
129
37
17
0.45
5.0
4.72
5.4
25
124
40
17
0.50
5.0
5.50
5.2
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 coupon bond 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.
CFO Option Plan
On 21 September 2012, 2,399,138 options with a fair value of $0.4 million were issued to the Chief Financial Officer under the CFO
Option Plan. The options were issued in two tranches, with 1,142,857 options being issued to the first tranche and 1,256,281 options
being allocated to the second tranche. Total options outstanding under the CFO Option Plan are 2,399,138 (30 June 2013: 2,399,138).
The unamortised fair value of outstanding CFO Option Plan options (measured at grant date) as at 30 June 2014 is $0.2 million
(30 June 2013: $0.3 million).
The first tranche of options may be exercised at any time between two to four years after the date of issue for the CFO Option Plan and
the second tranche between four to six years after the date of issue for the CFO 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 for the first tranche two years after issue, and the second tranche 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 vesting period,
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 Bloomberg World Airline Total Return Index (adjusted for dividends) in 50:50 proportions.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AS AT 30 JUNE 2014