Air New Zealand 2016 Annual Report Download - page 28

AIR NEW ZEAL AND ANNUAL FINANCIAL RESULTS 2016
Notes to the Financial Statements (continued)
As at 30 June 2016
26
AIR NEW ZEAL AND ANNUAL FINANCIAL RESULTS 2016
19. Share Capital (continued)
Options
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
(%)
Long-Term Incentive Plan1
2014
2013(1)
2013 (2)
2012
139
112
146
111
27
30
30
35
15
15
15
17
0.25
0.20
0.25
0.45
5.0
5.0
4.8
5.0
4.40
3.10
3.30
4.09
5.8
4.9
3.8
5.0
25
25
25
25
CFO Option Plan2
2013 Tranche 1
2013 Tranche 2
112
112
30
30
15
20
0.20
0.20
4.0
6.0
2.90
3.30
4.9
4.9
20
25
1 Volatility and correlation estimates were derived using historical data over past 3-5 years; Risk free rate was based on the 5 year zero coupon bond yield.
2 Volatility and correlation estimates were derived using historical data over past 2-4 years; Risk free rate was based on 4-6 year zero coupon bond yields.
CEO Restricted Share
Rights Plan
WEIGHTED
AVERAGE
SHARE PRICE
(CENTS) EQUITY BETA
MARKET RISK
PREMIUM
(%)
CONTRACTUAL
LIFE
(YEARS)
RISK FREE
RATE
(%)
EXPECTED
DIVIDEND
YIELD
(%)
COST OF
EQUITY
(%)
2016 2.39 1.25 7.50 2.3 2.50 6.3 11.1
Performance share rights
Performance share rights for a specified value are granted at no cost to the holder. For each performance share right that vests, one share will be
issued. The number granted is determined by an independent valuation of the fair value at the date of issue. Vesting of performance share rights
is subject to the holder remaining an employee and vesting conditions relating to the Air New Zealand share price being achieved. If vesting is not
achieved on the third anniversary of the issue date, 50 percent of performance rights will lapse. For the remaining 50%, there will be a further
6 month opportunity for the performance rights to vest. If they have not vested at the end of this period they will lapse.
In order to vest the Air New Zealand share price adjusted for distributions made over the period must outperform a comparison index over a period
of three years (or up to a maximum of three and a half years) after the issue date. The index is made up of 50:50 of the NZSX All Gross Index and
the Bloomberg World Airline Total Return Index (adjusted for dividends).
Options
The exercise price has been modelled as a stochastic variable, using the volatility, correlation, dividend yield and risk free rate assumptions provided.
The volatility and correlation estimates were derived from measuring these parameters using historical data. The risk free rate was based on the
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.
Long-Term Incentive Plan (LTIP)
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(2) options were able to
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 Air New Zealand’s 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 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.
CFO Option Plan
The first tranche of options was exercisable 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 was set for the first tranche two years after issue, and the second tranche will be set four years after issue, and is based on
Air New Zealand’s 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 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.
CEO Restricted Share Rights Plan
Restricted share rights for a specified value are granted at no cost to the holder. For each restricted share right that vests, one share will be issued.
The number granted is determined by an independent valuation of the fair value at the date of issue. Vesting of restricted share rights is subject to
the holder remaining an employee. The restricted share rights vest on 31 December 2017 and if they have not vested on this date they will lapse.