Cameco Annual Report 2011

Notes

Table of Contents

27. Share-Based Compensation Plans

The Company has the following equity-settled plans:

  1. (a) Stock Option Plan

    The Company has established a stock option plan under which options to purchase common shares may be granted to officers and other employees of Cameco. Options granted under the stock option plan have an exercise price of not less than the closing price quoted on the TSX for the common shares of Cameco on the trading day prior to the date on which the option is granted. The options vest over three years and expire eight years from the date granted. Options have not been awarded to directors since 2003 and the plan has been amended to preclude the issue of options to directors.

    The aggregate number of common shares that may be issued pursuant to the Cameco stock option plan shall not exceed 43,017,198, of which 26,486,819 shares have been issued.

    Stock option transactions for the respective years were as follows:

    (Number of Options) 2011 2010
    Beginning of period 7,552,379  7,939,833 
    Options granted 1,630,069  1,515,945 
    Options forfeited (261,978) (391,089)
    Options exercised [note 20] (394,380) (1,512,310)
    End of period 8,526,090  7,552,379 
    Exercisable 5,556,417  4,814,761 

    Weighted average exercise prices were as follows

      2011 2010
    Beginning of period $30.26 $27.42
    Options granted 39.10 28.90
    Options forfeited 36.88 35.05
    Options exercised 14.68 12.75
    End of period $32.47 $30.26
    Exercisable $32.16 $32.02

    Total options outstanding and exercisable at December 31, 2011 were as follows:

      Options Outstanding Options Exercisable
    Option Price Per Share Number Weighted
    Average
    Remaining
    Life
    Weighted
    Average
    Exercisable
    Price
    Number Weighted
    Average
    Exercisable
    Price
    $10.50 - 26.24 1,733,874 4.5 $16.83 1,269,076 $15.66
      26.25 - 55.00 6,792,216 3.5 36.46 4,287,341 37.04
      8,526,090     5,556,417  

    The foregoing options have expiry dates ranging from March 9, 2012 to March 2, 2019

    Non-vested stock option transactions for the respective years were as follows:

    (Number of Options) 2011 2010
    Beginning of period 2,737,618  2,389,685 
    Options granted 1,630,069  1,515,945 
    Options forfeited (96,055) (91,439)
    Options vested (1,301,959) (1,076,573)
    End of period 2,969,673  2,737,618 

    For the year ended December 31, 2011, Cameco has recorded a net expense of $14,803,000 (2010 - $8,931,000), related to options that vested during the year.

  2. (b) Executive Performance Share Unit (PSU)

    The Company has established a PSU plan whereby it provides each plan participant an annual grant of PSUs in an amount determined by the board. Each PSU represents one phantom common share that entitles the participant to a payment of one Cameco common share purchased on the open market, or cash at the board's discretion, at the end of each three-year period if certain performance and vesting criteria have been met. The final value of the PSUs will be based on the value of Cameco common shares at the end of the three-year period and the number of PSUs that ultimately vest. Vesting of PSUs at the end of the three-year period will be based on total shareholder return over the three years, Cameco's ability to meet its annual cash flow from operations targets and whether the participating executive remains employed by Cameco at the end of the three-year vesting period.

    Cameco records compensation expense with an offsetting credit to contributed surplus to reflect the estimated fair value of PSUs granted to employees. For the year ended December 31, 2011, the amount recorded was $4,392,000 (2010 - $3,679,000). As of December 31, 2011, the total PSUs held by the participants after adjusting for forfeitures on retirement was 310,413 (2010 - 395,360).

  3. (c) Executive Restricted Share Unit (RSU)

    In 2011, the Company established an RSU plan whereby it provides each plan participant an annual grant of RSUs in an amount determined by the board. Each RSU represents one phantom common share that entitles the participant to a payment of one Cameco common share purchased on the open market, or cash at the board's discretion. The final value of the RSUs will be based on the value of Cameco common shares at the end of the three year vesting period.

    Cameco records compensation expense with an offsetting credit to contributed surplus to reflect the estimated fair value of RSUs granted to employees. For the year ended December 31, 2011, the amount recorded was $297,000 (2010 - nil). As of December 31, 2011, the total RSU's held by the participants was 70,000 (2010 – nil).

The Company has the following cash-settled plans:

  1. (a) Deferred Share Unit (DSU)

    Cameco offers a deferred share unit plan to non-employee directors. A DSU is a notional unit that reflects the market value of a single common share of Cameco. 60% of each director's annual retainer is paid in DSUs. In addition, on an annual basis, directors can elect to receive 25%, 50%, 75% or 100% of the remaining 40% of their annual retainer and any additional fees in the form of DSUs. If a director meets their ownership requirements, the director may elect to take 25%, 50%, 75% or 100% of their annual retainer and any fees in cash, with the balance, if any, to be paid in DSUs. Each DSU fully vests upon award. The DSUs will be redeemed for cash upon a director leaving the board. The redemption amount will be based upon the weighted average of the closing prices of the common shares of Cameco on the TSX for the last 20 trading days prior to the redemption date multiplied by the number of DSUs held by the director. As of December 31, 2011, the total DSUs held by participating directors was 380,851 (2010 – 354,276).

  2. (b) Phantom Stock Option

    Cameco makes annual grants of bonuses to eligible non-North American employees in the form of phantom stock options. Employees receive the equivalent value of shares in cash when exercised. Options granted under the phantom stock option plan have an award value equal to the closing price quoted on the TSX for the common shares of Cameco on the trading day prior to the date on which the option is granted. The options vest over three years and expire eight years from the date granted. As of December 31, 2011, the number of options held by participating employees was 249,227 (2010 - 242,051) with exercise prices ranging from $10.51 to $46.88 per share (2010 - $5.88 to $46.88) and a weighted average exercise price of $31.48 (2010 - $29.97).

The fair value of the units granted through the PSU plan was determined based on Monte Carlo simulation. The fair value of all other share-based payment plans was measured based on the Black-Scholes option-pricing model. Expected volatility is estimated by considering historic average share price volatility.

The inputs used in the measurement of the fair values at grant date of the equity-settled share-based payment plans were as follows:

  Stock Option Plan PSUs RSUs
Number of options granted 1,630,069 146,450 70,000
Average strike price $39.10
Expected dividend $0.40 $0.00 $0.40
Expected volatility 39% 50% 39%
Risk–free interest rate 2.5% 2.2% 2.5%
Expected life of option 4.5 years 3 years 3 years
Expected forfeitures 15% 0% 0%
Weighted average grant date fair values $12.57 $42.11 $25.44

In addition to these inputs, other features of the PSU grant were incorporated into the measurement of fair value. The market condition based on total shareholder return was incorporated by utilizing a Monte Carlo simulation. The non-market criteria relating to realized selling prices, production targets and cost control have been incorporated into the valuation at grant date by reviewing prior history and corporate budgets.

The inputs used in the measurement of the fair values at measurement date of the cash-settled share-based payment plans were as follows:

  DSUs Phantom Option Plan
Number of units outstanding 380,851 249,227
Average strike price $31.53
Expected dividend $0.40 $0.40
Expected volatility 42% 42%
Risk-free interest rate 1.1% 1.1%
Expected life of option 3.5 years 3.5 years
Expected forfeitures 0% 0%
Weighted average measurement date fair values $18.41 $2.17

Cameco also has an employee share ownership plan which commenced in 2007, whereby both employee and Company contributions are used to purchase shares on the open market for employees. The Company's contributions are expensed during the year of contribution. Under the plan, employees have the opportunity to participate in the program to a maximum of 6% of eligible earnings each year with Cameco matching the first 3% of employee-paid shares by 50%. Cameco contributes $1,000 of shares annually to each employee that is enrolled in the plan. Shares purchased with Company contributions and with dividends paid on such shares, become unrestricted on January 1 of the second plan year following the date on which such shares were purchased. At December 31, 2011, there were 3,695 participants in the plan (2010 – 3,496). The total number of shares purchased in 2011 on behalf of participants, including the Company contribution, was 257,747 shares (2010 – 214,795). In 2011, the Company's contributions totaled $4,647,000 (2010 - $4,528,000).

Cameco has recognized the following expenses (recoveries) under these plans:

  2011 2010
Deferred share units $(7,725) $1,971
Phantom stock options (2,608) 931
Employee share ownership plan 4,647  6,608

At December 31, 2011, a liability of $7,479,000 (2010 - $17,581,000) was included in the statement of financial position to recognize accrued but unpaid expenses for these plans.