Annual Report - Li Ning

Notes to the Consolidated Financial Statements (Continued)
(All amounts in RMB unless otherwise stated)
27. Share-based compensation (Continued)
(d) Fair value of share options (Continued)
The fair values were determined using the Black-Scholes valuation model which was performed by an independent
valuer, American Appraisal China Limited. Significant inputs into the model were as follows:
2006 2005
Alpha Talent Option
Weighted average share price (HK$) 7.26 4.68
Weighted average exercise price (HK$) 0.86 3.19
Expected volatility 43.7% 39.2%
Expected option life (years) 4.00 3.11
Weighted average annual risk free interest rate 4.7% 4.4%
Expected dividend yield 2.0% 2.0%
Post-IPO Option
Weighted average share price (HK$) 8.53 3.65
Weighted average exercise price (HK$) 8.60 3.69
Expected volatility 43.8% 39.2%
Expected option life (years) 3.98 4.00
Weighted average annual risk free interest rate 4.0% 3.3%
Expected dividend yield 2.0% 2.0%
The expected volatility is estimated based on the daily trading prices of the Company’s shares since its date of listing (28
June 2004).
(e) RestrictedShareAwardScheme
The Company adopted the Li Ning Company Limited Restricted Share Award Scheme (‘‘Restricted Share Award Scheme’’)
on 14 July 2006 with a duration of 10 years commencing from the adoption date. The objective of the Restricted Share
Award Scheme is to encourage and retain selected participants which include directors, employees, officers, agents
and consultants of the Group, to work with the Group and to provide additional incentive for them to achieve
performance goals.
The Group has set up the Li Ning Company Limited Restricted Share Award Scheme Trust (‘‘Restricted Share Trust’’) to
administer and hold the Company’s shares before they are vested and transferred to selected participants. As the financial
and operational policies of the Restricted Share Trust are governed by the Group, and Group benefits from the Restricted
Share Trust’s activities, the Restricted Share Trust is consolidated in the Group’s financial statement as a special
purpose entity.
Upon granting of shares to selected participants (‘‘Restricted Shares’’), the Restricted Share Trust purchases the Company’s
shares awarded from the open market with finance provided by the Company by way of contributions. Restricted Shares
vest gradually after selected participants complete a period of service in the Group of 12 to 36 months from the date of
grant. The vested shares are transferred to selected participants at nil consideration. Dividends on Restricted Shares are
used to purchase additional shares and allocated to selected participants on a pro rata basis.
The maximum number of Restricted Shares shall not exceed 20,555,900 shares, being 2% of the Company’s issued
ordinary shares as at the adoption date of 14 July 2006. For each selected participant, the maximum number of Restricted
Shares granted in aggregate shall not exceed 10,278,000 shares, being 1% of the Company’s issuedordinarysharesasat
the adoption date of 14 July 2006.
The fair value of Restricted Shares awarded was based on the market value of the Company’s shares at the grant date.
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