Consolidated financial statements - Rolls-Royce

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115 Financial statements Notes to the consolidated financial statements 21 Share-based payments (continued) As share options are exercised throughout the year, the weighted average share price during the year of 642p (2010 579p) is representative of the weighted average share price at the date of exercise. The closing price at December 31, 2011 was 746.5p, (2010 623p). The average remaining contractual life of exercisable options is one year (2010 1.7 years). Share options outstanding Number Millions ShareSave ESOP Total Weighted average remaining contractual life Years Number Millions Weighted average remaining contractual life Years Number Millions Weighted average remaining contractual life Years Exercise prices (pence) At December 31, 2011 0 – 99 – – 0.4 1.2 0.4 1.2 100 – 199 – – 0.1 0.2 0.1 0.2 300 – 399 10.8 2.3 – – 10.8 2.3 400 – 499 6.0 1.1 – – 6.0 1.1 500 – 599 10.7 4.2 – – 10.7 4.2 27.5 2.7 0.5 1.0 28.0 2.7 At December 31, 2010 0 – 99 – – 0.4 2.2 0.4 2.2 100 – 199 – – 0.1 1.2 0.1 1.2 200 – 299 4.5 0.1 0.2 0.3 4.7 0.1 300 – 399 11.6 3.2 – – 11.6 3.2 400 – 499 10.4 1.3 – – 10.4 1.3 26.5 2.0 0.7 1.7 27.2 1.9 The range of exercise prices of options outstanding at December 31, 2011 was: for ShareSave between 387p and 525p (2010 298p and 416p); and for ESOP it was between 77p and 188p (2010 77p and 218p). Under the terms of the Rolls-Royce 1999 Executive Share Option Plan, options granted to 20 directors and senior executives were outstanding at December 31, 2011. Fair values of share-based payment plans The weighted average fair value per share of equity-settled share-based payment plans granted during the year, estimated at the date of grant, are as follows: 2011 2010 PSP – 25% TSR uplift 662p 586p PSP – 50% TSR uplift 737p 654p ShareSave – 3 year grant 210p n/a ShareSave – 5 year grant 238p n/a APRA 612p 537p Financial statements Rolls-Royce Holdings plc Annual report 2011
116 Financial statements Notes to the consolidated financial statements 21 Share-based payments (continued) In estimating these fair values, the following assumptions were used: PSP ShareSave 2011 2010 2011 Weighted average share price 612p 545p 691p Exercise price n/a n/a 525p Expected dividends 15.4p 14.6p 16.0p Expected volatility 32% 33% 30% Correlation 36% 35% n/a Expected life – PSP 3 years 3 years n/a Expected life – 3 year ShareSave n/a n/a 3.3 – 3.8 years Expected life – 5 year ShareSave n/a n/a 5.3 – 5.8 years Risk free interest rate 1.9% 1.9% 1.9% Expected volatility is based on the historical volatility of the Company’s share price over the seven years prior to the grant or award date. Expected dividends are based on the Company’s payments to shareholders in respect of the previous year. PSP The fair value of shares awarded under the PSP is calculated using a pricing model that takes account of the non-entitlement to dividends (or equivalent) during the vesting period and the market-based performance condition based on expectations about volatility and the correlation of share price returns in the group of FTSE 100 companies and which incorporates into the valuation the interdependency between share price performance and TSR vesting. This adjustment increases the fair value of the award relative to the share price at the date of grant. ShareSave The fair value of the options granted under the ShareSave plan is calculated using a binomial pricing model that assumes that participants will exercise their options at the beginning of the six-month window if the share price is greater than the exercise price. Otherwise it assumes that options are held until the expiration of their contractual term. This results in an expected life that falls somewhere between the start and end of the exercise window. APRA The fair value of shares awarded under APRA is calculated as the share price on the date of the award, excluding expected dividends. 22 Operating leases Operating leases Leases as lessee Rentals paid – hire of plant and machinery 104 82 – hire of other assets 29 20 Non-cancellable operating lease rentals are payable as follows: Within one year 117 92 Between one and five years 401 265 After five years 479 215 997 572 2011 £m 2010 £m Rolls-Royce Holdings plc Annual report 2011
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Consolidated financial statements - Rolls-Royce

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