Carphone Warehouse 2006 Annual Report Download - page 52

Notes to the Financial Statements continued
6 Share-based payments continued
c) Retail Share Option Scheme:
The Group has a Retail Share Option Scheme, which is open to senior employees in the UK Retail business. The scheme provides for a grant price equal to the
average quoted market price of the Company’s shares on the date of grant. Options granted are subject to performance criteria. The vesting period is generally
three years. If the options remain unexercised after a period of ten years from the date of grant, the options expire. Furthermore, options are forfeited if the
employee leaves the Group before the options vest.
The following table illustrates the number and WAEP of share options for the scheme:
2006 2005
Number WAEP Number WAEP
000’s £ 000’s £
Outstanding at the beginning of the period 7,325 1.54 5,950 1.44
Granted during the period 906 2.51 2,810 1.71
Forfeited during the period (1,367) 1.56 (1,435) 1.44
Outstanding at the end of the period 6,864 1.67 7,325 1.54
Exercisable at the end of the period ––––
The options outstanding at 1 April 2006 had a weighted average remaining contractual life of 8.4 years (2005 – 9.2 years).
d) Other employee share option schemes:
The savings-related share option scheme permits the grant to employees of options linked to a bank save-as-you-earn contract for a term of three or five years
with contributions from employees of between £5 and £250 per month. Options may be exercised at the end of the three or five year period at a subscription price
not less than 80% of the middle market quotation on the date of grant.
In addition, options were granted to UK employees at the time of the Group’s admission to the London Stock Exchange.
The following table illustrates the number and WAEP of share options for the schemes:
2006 2005
Number WAEP Number WAEP
000’s £ 000’s £
Outstanding at the beginning of the period 7,795 0.91 5,807 0.78
Granted during the period 3,660 1.38 3,498 1.15
Forfeited during the period (1,534) 1.12 (1,010) 0.95
Exercised during the period (977) 0.67 (500) 0.97
Outstanding at the end of the period 8,944 1.09 7,795 0.91
Exercisable at the end of the period 710 0.87 741 0.86
The options outstanding at 1 April 2006 had a weighted average remaining contractual life of 2.3 years (2005 – 2.6 years).
The summary above includes 1.5m (2005 – 2.6m) options that were granted before 7 November 2002. In accordance with IFRS2, no cost has been recognised in
respect of these options.
The options exercised during the period were exercised at a weighted average market price of £1.90 (2005 – £1.42).
e) Fair value models:
Nil cost options with internal performance targets are valued using the market price of a share at the date of grant discounted for expected future dividends to the
date of exercise. The fair values of other options with internal performance targets are estimated at the date of grant using a Binomial model. The inputs into the
Binomial model are as follows:
2006 2005
Expected volatility (%) 30.0 30.0
Risk free rate (%) 4.5 4.5
Dividend yield (%) 2.0 2.0
Expected volatility has been arrived at by using the historical volatility of the Group’s share price, and the volatility of the share price of similar companies whose
shares have been listed for longer than those of the Group, over a period comparable with the expected lives of the options. The assumptions made to incorporate
the effects of expected early exercise have been included by assuming an expected option life based on historical exercise patterns for each option scheme.
The fair values of options with external performance targets are estimated at the date of grant using a Monte Carlo model. The model combines the market price
of a share at the date of grant with the probability of meeting performance criteria, based on the historical performance of the Group’s shares. A dividend yield of
2.0% has been assumed in the model.
f) Charge to income statement:
During the period the Group recognised a charge of £10.7m (2005 – £3.6m) in respect of equity settled share-based payments.
The Carphone Warehouse Group PLC Annual Report 2006
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