For the years ended December 31, 2007 and 2006
($Cdn thousands except per share amounts and as noted)
Cameco has established a stock option plan under which options to purchase common shares may be granted to directors, officers and other employees of Cameco. Options granted under the stock option plan have an exercise price of not less than the closing price quoted on the TSX for the common shares of Cameco on the trading day prior to the date on which the option is granted. The options vest over three years and expire eight years from the date granted. Options granted prior to 1999 expire 10 years from the date of the grant of the option. Options have not been awarded to directors since 2003.
The aggregate number of common shares that may be issued pursuant to the Cameco stock option plan shall not exceed 43,017,198, of which 24,011,079 shares have been issued.
Stock option transactions for the respective years were as follows:
|(Number of Options)||2007||2006|
|Beginning of year||7,390,053||8,723,170|
|Options exercised [note 11]||(1,794,515)||(2,716,679)|
|End of year||6,422,592||7,390,053|
Upon exercise of certain existing options, additional options in respect of 15,300 shares would be granted.
Weighted average exercise prices were as follows:
|Beginning of year||$||19.92||$||13.29|
|End of year||$||25.40||$||19.92|
Total options outstanding and exercisable at December 31, 2007 were as follows:
|2007||Options Outstanding||Options Exercisable|
|Option Price Per Share||Number||Weighted
|$3.13 – 5.99||129,300||1||$4.47||129,300||$4.47|
|6.00 – 13.49||2,347,560||4||8.21||2,227,560||8.32|
|13.50 – 32.99||1,698,552||7||26.92||929,010||26.81|
|33.00 – 55.43||2,247,180||7||43.40||410,609||41.00|
The foregoing options have expiry dates ranging from February 23, 2008 to May 29, 2017.
On July 27, 2007, Cameco's board of directors approved an amendment to the company's stock option program introducing a cash settlement feature for the exercise of employee stock options. The cash settlement feature allows option holders to elect to receive an amount in cash equal to the intrinsic value, being the excess market price of the common share over the exercise price of the option, instead of exercising the option and acquiring common shares. All outstanding stock options are now classified as liabilities and are carried at their intrinsic value. The intrinsic value of the liability is marked to market each period. The intrinsic value is amortized to expense over the shorter of, the period to eligible retirement, or the vesting period. Previously, all stock options were classified as equity and were accounted for using the fair value method. Under this method, the compensation cost of options granted was measured at estimated fair value at the grant date and recognized over the shorter of, the period to eligible retirement, or the vesting period. The impact of the reclassification of the stock options at July 27, 2007 was an increase in liabilities of $116,050,000, a decrease in contributed surplus of $21,875,000 and a decrease to earnings of $94,175,000. In addition, a future tax recovery of $35,225,000 was recorded.
For the year ended December 31, 2007, Cameco has recorded a net recovery of $4,868,000 (2006 expense – $17,549,000), related to options issued and vested during the year. These amounts are exclusive of the expense recorded upon adoption of the cash settlement feature on July 27, 2007.
The fair value of the options granted prior to July 27, 2007, was determined using the Black-Scholes option-pricing model with the following assumptions:
|Number of options granted||976,475||1,537,330|
|Average strike price||$||46.82||$||41.04|
|Risk-free interest rate||4.0%||4.0%|
|Expected life of option||3.5 years||4 years|
|Weighted average grant date fair values||$||14.30||$||13.19|
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 the remaining 40% of their annual retainer and any additional fees in the form of 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, 2007, the total DSUs held by participating directors was 329,908 (2006 – 299,928).
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, 2007, the number of options held by participating employees was 339,072 (2006 – 383,181) with exercise prices ranging from $4.81 to $54.38 per share (2006 – $4.81 to $41.00) and a weighted average exercise price of $39.56 (2006 – $18.63).
Commencing in 2007, Cameco created an employee share ownership plan 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, all 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. At December 31, 2007, there were 2,637 participants in the plan. The total number of shares purchased in 2007 on behalf of participants, including the company contribution, was 159,761 shares. In 2007, the company's contributions totaled $3,716,000.
Cameco has recognized the following expenses (recoveries) under these plans:
|Performance share units||$||4,288||$||4,884|
|Deferred share units||(2,606)||3,206|
|Phantom stock options||(1,410)||5,212|
|Employee share ownership plan||3,716||–|