BT 2007 Annual Report Download - page 123

31. SHARE BASED PAYMENTS continued
Share option plans
BT Group Employee Sharesave plans
There is an HM Revenue and Customs approved savings related share option plan, under which employees save on a monthly basis,
over a three or five year period, towards the purchase of shares at a fixed price determined when the option is granted. This price is
usually set at a 20% discount to the market price for five year plans and 10% for three year plans. The options must be exercised
within six months of maturity of the savings contract, otherwise they lapse. Options are granted annually, usually in June. Similar
plans operate for BT’s overseas employees.
Employees may cancel sharesave options and remain employed by the group. In such cases the options so cancelled do not vest
and the monthly savings contributions are returned to the employee, with interest if applicable. Such events are accounted for by
ceasing to record a share based payments charge from the date of the employee’s withdrawal from the relevant plan. Previously
recorded share based payment charges are not reversed, and no charge is made for the accelerated vesting of future options that
will not now vest.
For options outstanding at 31 March 2007, 2006 and 2005, the weighted average exercise prices are shown below.
2007 2007 2006 2006 2005 2005
Number of
share
options
(millions)
Weighted
average
exercise
price
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 279 166p 262 169p 233 180p
Granted during the year 49 185p 59 179p 91 149p
Forfeited during the year (12) 176p (20) 173p (59) 176p
Exercised during the year (42) 199p (2) 215p – –
Expired during the year (2) 179p (20) 216p (3) 176p
Outstanding at the end of the year 272 165p 279 166p 262 169p
Exercisable at the end of the year 2 210p – – 16 218p
The weighted average remaining contractual life of options exercisable at 31 March 2007 was 4 months (2006: nil, 2005: 5 months).
The intrinsic value of options exercisable at 31 March 2007 was £2 million (2006: £nil; 2005: £nil).
Options were exercised regularly throughout the year. The weighted average share price during the year was 265p (2006: 205p,
2005: 183p).
The total intrinsic value of options exercised during the year was £36.5 million (2006: £0.7 million, 2005: £nil). The intrinsic
value of options outstanding at 31 March 2007 was £378 million (2006: £155 million; 2005: £105 million).
The weighted average fair value of savings related options granted during the 2007 financial year 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 229p (2006: 223p, 2005: 195p);
estimated annualised dividend yield of approximately 5.5% (2006: 5%, 2005: 5%); risk free interest rates of approximately 5%
(2006: 4%, 2005: 5%) and expected volatility of approximately 17% (2006: 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 BT share price in the future. The
exercise prices are 202p (2006: 192p, 2005: 165p) for Sharesave options exercisable three years after the date of grant and 179p
(2006: 171p, 2005: 146p) for Sharesave options exercisable five years after the date of grant. The weighted average fair value of
Sharesave options granted in the 2007 financial year was 35p (2006: 44p, 2005: 41p) for Sharesave options exercisable three years
after the date of grant and 45p (2006: 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
exercise price is 179p (2006: 171p, 2005: 146p). The weighted average fair value of these share options is 46p (2006: 49p, 2005:
52p). The share price at the date of grant was 229p (2006: 214p, 2005: 195p).
BT Group Global Share Option Plan (GSOP)
There were no options granted under the GSOP in the 2007 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 a risk free interest rate
of 4%. Details of this plan are provided in the share options section of 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.
Consolidated financial statements Notes to the consolidated financial statements
122 BT Group plc Annual Report & Form 20-F