27. Share-based compensation plans

The Company has the following equity-settled plans:

  • A. Stock option plan

    The Company has established a stock option plan under which options to purchase common shares may be granted to 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.

    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 27,427,951 shares have been issued.

    Stock option transactions for the respective years were as follows:

    (Number of options) 2012 2011
    Beginning of year 8,526,090 7,552,379
    Options granted 2,097,573 1,630,069
    Options forfeited (500,852) (261,978)
    Options exercised [note 20] (604,971) (394,380)
    End of year 9,517,840 8,526,090
    Exercisable 5,964,201 5,556,417

    Weighted average exercise prices were as follows:

      2012 2011
    Beginning of year $32.47 $30.26
    Options granted 21.14 39.10
    Options forfeited 34.22 36.88
    Options exercised 11.61 14.68
    End of year $31.20 $32.47
    Exercisable $33.53 $32.16

    Total options outstanding and exercisable at December 31, 2012 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
    $15.50 - 28.99 5,388,149 5.1 $23.73 2,820,020 $24.76
    $29.00 - 54.50 4,129,691 3.6 40.95 3,144,181 41.39
      9,517,840     5,964,201  

    The foregoing options have expiry dates ranging from August 16, 2013 to May 14, 2020.

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

    (Number of options) 2012 2011
    Beginning of year 2,969,673 2,737,618
    Options granted 2,097,573 1,630,069
    Options forfeited (88,868) (96,055)
    Options vested (1,424,739) (1,301,959)
    End of year 3,553,639 2,969,673

    For the year ended December 31, 2012, Cameco has recorded an expense of $14,247,000 (2011 - $14,803,000) related to options that vested during the year.

  • 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, 2012, the amount recorded was $2,709,000 (2011 - $4,392,000). As of December 31, 2012, the total number of PSUs held by the participants after adjusting for forfeitures on retirement was 350,240 (2011 - 310,413).

  • 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, 2012, the amount recorded was $594,000 (2011 - $297,000). As of December 31, 2012, the total number of RSUs held by the participants was 70,000 (2011 - 70,000). There were no grants of RSUs in 2012.

    The fair value of the units granted through the PSU plan was determined based on Monte Carlo simulation and the fair value of all other equity settled 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
    Number of options granted 2,097,573 178,640
    Average strike price $21.14 -
    Expected dividend $0.40 -
    Expected volatility 47% 36%
    Risk-free interest rate 1.4% 1.4%
    Expected life of option 4.3 years 3 years
    Expected forfeitures 10% 0%
    Weighted average grant date fair values $7.21 $20.05

    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 Company has the following cash-settled plans:

  • A. Deferred share unit (DSU)

    Cameco offers a DSU 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, 2012, the total number of DSUs held by participating directors was 457,277 (2011 - 380,851).

  • 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, 2012, the number of options held by participating employees was 248,440 (2011 - 249,227) with exercise prices ranging from $19.37 to $46.88 per share (2011 - $10.51 to $46.88) and a weighted average exercise price of $32.13 (2011 - $31.48).

    The fair value of all cash-settled 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 measurement date of the cash-settled share-based payment plans were as follows:

      Phantom Option Plan
    Number of units outstanding 248,440
    Average strike price $32.13
    Expected dividend $0.40
    Expected volatility 40%
    Risk-free interest rate 1.3%
    Expected life of option 3.4 years
    Expected forfeitures 0%
    Weighted average measurement date fair values $2.83

    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, 2012, there were 3,913 participants in the plan (2011 - 3,695). The total number of shares purchased in 2012 with Company contributions was 265,921 shares (2011 - 257,747). In 2012, the Company’s contributions totaled $5,230,000 (2011 - $4,647,000).

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

      2012 2011
    Deferred share units $352 $(7,725)
    Phantom stock options 325 (2,608)
    Employee share ownership plan 5,230 4,647

    At December 31, 2012, a liability of $9,665,000 (2011 - $7,479,000) was included in the statements of financial position to recognize accrued but unpaid expenses for these plans.