notes 31-34

LTIP

The LTIP is the primary long term incentive plan for Rexam’s executive directors, band 1 executives and other senior management. The LTIP measures performance targets over a three year period. Options will normally vest, subject to performance targets being achieved, on the third anniversary of the date of grant at a nominal cost to the employee. Employees who leave with a right to exercise options must normally wait until the end of the measurement period. If the option vests, the employee will receive an entitlement which normally will be time apportioned for the period from the start of the measurement period to the date on which employment ended.

Options granted in 2011 to executive directors and band 1 executives are subject to three performance conditions, compound annual growth in underlying earnings per share (EPS), return on capital employed (ROCE) and relative Total Shareholder Return (TSR), in the proportion 33%, 33% and 33%, respectively. These options are equity settled. Options granted in 2011 to other senior management are subject to two performance conditions, EPS and ROCE, in the proportion 67% and 33% respectively. These options are either equity settled or cash settled depending on the seniority of the employee.

Options granted in 2011 include a dividend equivalent element whereby employees will be entitled to receive, in shares or cash, the notional dividends paid during the measurement period on any options that vest.

For further details of the LTIP refer to the remuneration report.

LTIP 2007

Prior to 2009, annual grants of options were made to executive directors and senior executives under the LTIP 2007. All outstanding options lapsed in 2011.

ESOS

Prior to 2009, annual grants of options over ordinary shares were made to certain senior management. For grants up to and including 2006, shares vested if a performance target (growth in economic profit) was met over the three year measurement period. No performance targets were set for the 2007 and 2008 grants. Options are exercisable three years after grant date and expire ten years after grant date. The exercise price was set at market value using the market price of a Rexam share at the grant date.

Phantoms

This cash settled scheme operates in the same way as the ESOS scheme and relates to certain senior management located outside the UK and Europe.

SAYE

All employee SAYE schemes are open to eligible employees resident in the UK and Ireland. Annual grants of options over shares are currently made at an exercise price of 80% of the market value of Rexam shares at the grant date. Options vest three, five or seven years after the commencement of the savings contract, depending on the term selected by the employee at grant and expire six months after vesting.

(ii) employee benefit expense

(iii) key assumptions used in valuing options granted during the year

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. Historical volatilities are arrived at using a period comparable with the expected life of the option. The correlation coefficient for LTIP is calculated using the correlation matrix for the TSR simulation using three year daily historical stock price series for each company in the comparator group, including Rexam, from the beginning of the measurement period.

(iv) number of options and weighted average exercise prices of all option schemes

(v) exercise prices and average remaining contractual lives of options by scheme

(vi) Rexam Employee Share Trust

The Group operates an employee share trust, the Rexam Employee Share Trust, that owns 7,468,028 ordinary shares of 64²⁄₇p in Rexam PLC at 31 December 2011 (2010: 2,468,028) acquired at an average cost per share of £3.50 (2010: £3.38) and included in the consolidated balance sheet within retained earnings at a cost of £26m (2010: £8m). These shares will be used to satisfy LTIP exercises. The purchases are funded by cash contributions from participating companies. Dividends receivable during the year have been waived. The administration expenses of the Trust are borne by the Trust. Shares are allocated by the Trust when related LTIP options are exercised. The market value of the shares at 31 December 2011 was £26m (2010: £8m).

32 reconciliation of profit/(loss) before tax to cash generated/(used) from operations

33 contingent liabilities

In an international group a variety of claims arise from time to time; some have little or no foundation in law or in fact and others cannot be quantified. The claims include litigation against Group companies, investigations by regulatory and fiscal authorities and obligations arising under environmental legislation. Provision has been made in these consolidated financial statements against those claims which the directors consider are likely to result in significant liabilities. There are no contingent liabilities at 31 December 2011 or 31 December 2010 that require disclosure.

34 commitments

(i) operating lease commitments

The Group leases offices and warehouses under non cancellable operating leases. The leases have varying terms, purchase options, escalation clauses and renewal rights. The Group also leases plant and equipment under cancellable operating leases.

An analysis of the total future minimum lease payments under non cancellable operating leases is set out below.

Total future minimum sublease receipts under non cancellable operating leases are £8m (2010: £10m).

(ii) capital commitments