US Cellular 2015 Annual Report Download - page 107

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TDS has also established a Non-Employee Directors’ compensation plan under which it has reserved 139,000 TDS
Common Shares at December 31, 2015 for issuance as compensation to members of the Board of Directors who are
not employees of TDS.
TDS uses treasury stock to satisfy requirements for shares issued pursuant to its various stock-based compensation
plans.
Long-Term Incentive Plan – 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 periods up to three years from the date of grant.
Stock options outstanding at December 31, 2015 expire between 2016 and 2025. 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 TDS
common stock on the date of grant.
TDS estimated the fair value of stock options granted in 2015, 2014 and 2013 using the Black Scholes valuation model
and the assumptions shown in the table below:
2015 2014 2013
Expected life ....................................... 6.1 years 5.8 years 5.7 years
Expected annual volatility rate ............................ 30.8% 39.6% 41.0%
Dividend yield ...................................... 1.9% 2.0% 2.3%
Risk-free interest rate .................................. 1.8% 1.8% 1.0%
Estimated annual forfeiture rate ........................... 3.2% 2.9% 2.9%
A summary of TDS stock options (total and portion exercisable) and changes during 2015, is presented in the tables
and narrative below.
Weighted
Average
Weighted Remaining
Average Aggregate Contractual
Number of Exercise Intrinsic Life
Common Share Options Options Prices Value (in years)
Outstanding at December 31, 2014 ............ 9,140,000 $ 30.25
(6,487,000 exercisable) .................... 32.93
Granted ............................ 998,000 29.26
Exercised ........................... (575,000) 23.11
Forfeited ........................... (21,000) 26.30
Expired ............................ (407,000) 37.09
Outstanding at December 31, 2015 ............ 9,135,000 $ 30.29 $ 9,531,000 5.3
(6,009,000 exercisable) .................... $ 32.54 $ 5,548,000 3.8
The weighted average grant date fair value per share of the TDS stock options granted in 2015, 2014 and 2013 was
$7.66, $8.66 and $7.01, respectively. The aggregate intrinsic value of TDS stock options exercised in 2015, 2014 and
2013 was $3.8 million, $0.2 million and $2.5 million, respectively. The aggregate intrinsic value represents the total
pre-tax intrinsic value (the difference between TDS’ closing stock prices and the exercise price, multiplied by the number
of in-the-money options) that was received by the option holders upon exercise or that would have been received by
option holders had all options been exercised on December 31, 2015.
Long-Term Incentive Plans – Restricted Stock Units – TDS also grants restricted stock unit awards to key employees.
Each outstanding restricted stock unit is convertible into one Common Share Award. The restricted stock unit awards
currently outstanding were granted in 2013, 2014 and 2015 and will vest in 2016, 2017 and 2018, respectively.
TDS estimates the fair value of restricted stock units by reducing the grant-date price of TDS’ shares by the present
value of the dividends expected to be paid on the underlying shares during the requisite service period, discounted at
the appropriate risk-free interest rate, since employees are not entitled to dividends declared on the underlying shares
while the restricted stock is unvested. The fair value is then recognized as compensation cost on a straight-line basis
over the requisite service periods of the awards, which is generally the vesting period.
99
TELEPHONE AND DATA SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS