Telus 2011 Annual Report Download - page 139

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TELUS 2011 ANNUAL REPORT . 135
FINANCIAL STATEMENTS & NOTES: 12–13
13 SHARE-BASED COMPENSATION
Summary schedules and review of compensation arising from share option awards,
restricted stock units and employee share purchase plan
(a) Details of share-based compensation expense
Reflected in the Consolidated Statements of Income and Other Comprehensive Income as employee benefits expense and in the Consolidated
Statements of Cash Flows are the following share-based compensation amounts:
Years ended December 31 2 0 11 2010
Employee Associated Statement Employee Associated Statement
benefits operating of cash flows benefits operating of cash flows
(millions) expense cash outflows adjustment expense cash outflows adjustment
Share option awards(1) $ß(10) $ß (7) $ß(17) $ß 1 $ß(24) $ß(23)
Restricted stock units(2) 31 (26) 5 29 (36) (7)
Employee share purchase plan 30 (30) – 27 (27) –
$ 51 $ß(63) $ß(12) $ß57 $ß(87) $ß(30)
(1) The expense (recovery) arising from share options with the net-cash settlement feature, net of cash-settled equity swap agreement effects (see Note 4(i)), was $(19) (2010 – $(10)).
(2) The expense arising from restricted stock units was net of cash-settled equity swap agreement effects (see Note 4(i)).
For the year ended December 31, 2011, the associated operating
cash outflows in respect of share option awards include cash outflows
arising from the cash-settled equity swap agreements of $7 million
(2010 – $18 million). Similarly, for the year ended December 31, 2011,
the associated operating cash outflows in respect of restricted stock
units include cash inflows arising from the cash-settled equity swap
agreements of $7 million (2010 – cash outflows of $4 million). For the year
ended December 31, 2011, the income tax benefit arising from share-
based compensation was $15 million (2010 – $6 million); as disclosed in
Note 9, not all share-based compensation amounts are deductible for
income tax purposes.
(b) Share option awards
General
The Company applies the fair value based method of accounting for
share-based compensation awards granted to employees. The Company
uses share option awards as a form of retention and incentive compen-
sation. Share option awards typically have a three-year vesting period
(the requisite service period), but may vest over periods of up to five years.
The vesting method of share option awards, which is determined on
or before the date of grant, may be either cliff or graded; all share option
awards granted subsequent to 2004 have been cliff-vesting awards.
Share option awards accounted for as equity instruments
The weighted average fair value of share option awards granted, and the
weighted average assumptions used in the fair value estimation at the time
of grant, using the Black-Scholes model (a closed-form option pricing
model), are as follows:
Years ended December 31 2 0 11 2010
Share option award fair value (per share option) $ß 6.75 $ß 4.30
Risk free interest rate 2.3% 2.5%
Expected lives(1) (years) 4.25 4.5
Expected volatility 25.7% 26.3%
Dividend yield 4.5% 5.8%
(1) The maximum contractual term of the share option awards granted in 2011 and 2010
was seven years.
The risk free interest rate used in determining the fair value of the
share option awards is based on a Government of Canada yield curve
that is current at the time of grant. The expected lives of the share
option awards are based on historical share option award exercise data
of the Company. Similarly, expected volatility considers the historical
volatility of the Company’s Non-Voting Shares. The dividend yield is the
annualized dividend current at the date of grant divided by the share
option award exercise price. Dividends are not paid on unexercised share
option awards and are not subject to vesting.