BT 2006 Annual Report Download - page 104

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31. SHARE BASED PAYMENT PLANS continued
For options outstanding at 31 March 2006 and 2005, the weighted average exercise prices are shown below.
2006 2005
Number of
share
options
millions
Weighted
average
exercise
price
Number of
share
options
millions
Weighted
average
exercise
price
Outstanding at the beginning of the year 262 169p 233 180p
Granted during the year 59 179p 91 149p
Forfeited during the year (20) 173p (59) 176p
Exercised during the year (2) 215p ––
Expired during the year (20) 216p (3) 176p
Outstanding at the end of the year 279 166p 262 169p
Exercisable at the end of the year ––16 218p
Options were exercised regularly throughout the year. The weighted average option price of options exercised during the year was
205p (2005: 183p).
The weighted average fair value of savings related share options granted during the year ended 31 March 2006 has been
estimated on the date of grant using a binomial option pricing model. The following weighted average assumptions were used in
that model: an expected life extending three months later than the first exercise date; share price at date of grant of 223p;
estimated annualised dividend yield of approximately 5% (2005: 5%); risk free interest rates of approximately 4% (2005: 5%); and
expected volatility of approximately 25% (2005: 25%). Volatility has been determined by reference to BT’s historical volatility over
a three-year period, which is expected to reflect the share price of BT in the future. The exercise prices are 192p for Sharesave
options exercisable three years after the date of grant and 171p for Sharesave options exercisable five years after the date of grant.
The weighted average fair value of the share options granted in the year ended 31 March 2006 was 44p (2005: 41p) for Sharesave
options exercisable three years after the date of grant and 55p (2005: 52p) for Sharesave options exercisable five years after the
date of grant.
Options granted under BT’s international sharesave, which is a three-year plan, have been valued using the same assumptions.
The weighted average fair value of these share options is 49p (2005: 52p). The exercise price is 171p, and the share price at date
of grant was 214p.
Global Share Option Plan (GSOP)
There were no options granted under the GSOP in the 2006 financial year. The options granted in previous years will be
exercisable subject to continued employment and meeting corporate performance targets. These options were valued using Monte
Carlo Simulations. The weighted average fair value of options granted under the 2005 GSOP was estimated as 36p. The following
weighted average assumptions were used in that model: dividend yield of 5%, expected volatility of 25% and risk free interest rates
of 4%. Details of this plan are provided in the Report on directors’ remuneration.
BT Group Legacy Option Plan
On the demerger of O2, BT’s share option plans ceased to operate and were replaced by similar BT Group Employee Sharesave
plans and the BT Group Global Share Option Plan.
The BT Group Legacy Option Plan was launched on 17 December 2001 following the scheme of arrangement and demerger of
O2 in November 2001, and is therefore outside the scope of IFRS 2. Replacement unapproved options over BT Group shares were
granted to all participants in the executive option plans who had released their options over British Telecommunications plc shares.
The value of the replacement options was determined by averaging the combined prices of BT Group plc and O2 plc shares over
the 20 dealing days following the demerger on 19 November 2001. This resulted in a factor of 1.3198 being applied to the former
option over British Telecommunications plc shares in order to give the number of BT Group shares under the new option. The
option prices of the original options were also adjusted to take account of the different number of shares under option. The options
are exercisable subject to continued employment and meeting corporate performance targets, on the third anniversary of the date
of grant.
For options outstanding at 31 March 2006 and 2005 in respect of the BT Global Share Option Plan and the BT Group Legacy
Option Plan, the weighted average exercise prices are shown below.
2006 2005
Number of
share
options
millions
Weighted
average
exercise
price
Number of
share
options
millions
Weighted
average
exercise
price
Outstanding at the beginning of the year 206 213p 194 216p
Granted during the year ––31 193p
Forfeited during the year (16) 205p (18) 193p
Exercised during the year (3) 199p ––
Expired during the year ––(1) 353p
Outstanding at the end of the year 187 213p 206 213p
Exercisable at the end of the year 57 280p 34 206p
BT Group plc Annual Report and Form 20-F 2006 Notes to the consolidated financial statements102