US Cellular 2014 Annual Report Download - page 78

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United States Cellular Corporation
Notes to Consolidated Financial Statements (Continued)
NOTE 16 STOCK-BASED COMPENSATION (Continued)
On June 25, 2013, U.S. Cellular paid a special cash dividend to all holders of U.S. Cellular Common
Shares and Series A Common Shares as of June 11, 2013. Outstanding U.S. Cellular stock options,
restricted stock unit awards and deferred compensation stock units were equitably adjusted for the
special cash dividend. The impact of such adjustments are fully reflected for all years presented. See
Note 5—Earnings Per Share for additional information.
At December 31, 2014, U.S. Cellular had reserved 9,782,000 Common Shares for equity awards granted
and to be granted under the Long-Term Incentive Plans.
U.S. Cellular also has established a Non-Employee Director compensation plan under which it has
reserved 197,000 Common Shares at December 31, 2014 for issuance as compensation to members of
the Board of Directors who are not employees of U.S. Cellular or TDS.
U.S. Cellular uses treasury stock to satisfy requirements for Common Shares issued pursuant to its
various stock-based compensation plans.
Long-Term Incentive Plans—Stock Options—Stock options granted to key employees are exercisable over
a specified period not in excess of ten years. Stock options generally vest over a period of three years
from the date of grant. Stock options outstanding at December 31, 2014 expire between 2015 and 2024.
However, vested stock options typically expire 30 days after the effective date of an employee’s
termination of employment for reasons other than retirement. Employees who leave at the age of
retirement have 90 days (or one year if they satisfy certain requirements) within which to exercise their
vested stock options. The exercise price of options equals the market value of U.S. Cellular Common
Shares on the date of grant.
U.S. Cellular estimated the fair value of stock options granted during 2014, 2013, and 2012 using the
Black-Scholes valuation model and the assumptions shown in the table below.
2014 2013 2012
Expected life ........................ 4.5 years 4.6 - 9.0 years 4.5 years
Expected annual volatility rate ........... 28.0% - 28.1% 29.2% - 39.6% 40.7% - 42.6%
Dividend yield ....................... 0% 0% 0%
Risk-free interest rate .................. 1.4% - 1.5% 0.7% - 2.4% 0.5% - 0.9%
Estimated annual forfeiture rate .......... 9.4% 0.0% - 8.1% 0.0% - 9.1%
The fair value of options is recognized as compensation cost using an accelerated attribution method
over the requisite service periods of the awards, which is generally the vesting period.
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