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Stock Based Compensation
 12 Months Ended
Dec. 31, 2011
Disclosure Text Block  
Stock Based Compensation

NOTE 16 STOCK-BASED COMPENSATION

 

U.S. Cellular has established the following stock-based compensation plans: a long-term incentive plan and a Non-Employee Director compensation plan, and had an employee stock purchase plan that was terminated in the fourth quarter of 2011. Also, U.S. Cellular employees were eligible to participate in the TDS employee stock purchase plan before this was terminated in the fourth quarter of 2011.

 

Under the U.S. Cellular 2005 Long-Term Incentive Plan, U.S. Cellular may grant fixed and performance based incentive and non-qualified stock options, restricted stock, restricted stock units, and deferred compensation stock unit awards to key employees. At December 31, 2011, the only types of awards outstanding are fixed non-qualified stock option awards, restricted stock unit awards, and deferred compensation stock unit awards.

 

At December 31, 2011, U.S. Cellular had reserved 5,836,000 Common Shares for equity awards granted and to be granted under the 2005 Long-Term Incentive Plan. No Common Shares were reserved for issuance to employees under any employee stock purchase plan since this plan was terminated in the fourth quarter of 2011. The maximum number of U.S. Cellular Common Shares that may be issued to employees under all stock-based compensation plans in effect at December 31, 2011, was 5,836,000.

 

U.S. Cellular also has established a Non-employee Director compensation plan under which it has reserved 32,000 Common Shares 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 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 a period of three years from the date of grant. Stock options outstanding at December 31, 2011 expire between 2012 and 2021. 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 2011, 2010, and 2009 using the Black-Scholes valuation model and the assumptions shown in the table below.

 

 2011 2010 2009
Expected life4.3 years 0.9-8.0 years 3.9 years
Expected volatility43.4%-44.8% 26.9%-43.9% 40.3%-44.2%
Dividend yield0% 0% 0%
Risk-free interest rate0.7%-2.0% 0.4%-3.1% 1.2%-2.2%
Estimated annual forfeiture rate0.0%-7.8% 0.0%-8.4% 6.9%

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.

 

A summary of U.S. Cellular stock options outstanding (total and portion exercisable) and changes during the three years ended December 31, 2011, is presented in the table below:

 

              Weighted
              Average
     Weighted Weighted    Remaining
     Average Average Aggregate Contractual
 Number of  Exercise Grant Date Intrinsic Life
 Options  Price Fair Value Value (in years)
               
Outstanding at December 31, 2008 1,626,000  $57.15        
(624,000 exercisable)     51.56        
Granted  748,000   34.21 $11.75     
Exercised  (181,000)  34.01    $821,000  
Forfeited  (130,000)  47.98        
Expired  (34,000)  56.84        
Outstanding at December 31, 2009 2,029,000  $51.37        
(1,046,000 exercisable)     54.40        
Granted  831,000   41.98 $13.75     
Exercised  (317,000)  38.60    $1,555,000  
Forfeited  (88,000)  44.28        
Expired  (193,000)  61.50        
Outstanding at December 31, 2010 2,262,000  $49.12        
(1,151,000 exercisable)    $54.64        
Granted   595,000   51.70 $19.42     
Exercised   (173,000)   37.50    $ 2,099,000  
Forfeited   (72,000)   45.97        
Expired   (175,000)   57.05        
Outstanding at December 31, 2011 2,437,000   50.10    $4,423,000 6.9
(1,321,000 exercisable)     53.68    $2,361,000 5.5

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between U.S. Cellular's closing stock price 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, 2011.

 

Long-Term Incentive Plan—Restricted Stock Units—U.S. Cellular grants restricted stock unit awards, which generally vest after three years, to key employees.

 

U.S. Cellular estimates the fair value of restricted stock units based on the closing market price of U.S. Cellular shares on the date of grant. 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.

 

A summary of U.S. Cellular nonvested restricted stock units at December 31, 2011 and changes during the year then ended is presented in the table below:

 

 

 Number  Weighted Average Grant Date Fair Value
Nonvested at December 31, 2010752,000  $42.69
Granted346,000   49.35
Vested(189,000)  55.93
Forfeited(64,000)  42.48
Nonvested at December 31, 2011845,000  $42.48

The total fair value of restricted stock units that vested during 2011, 2010 and 2009 was $9.5 million, $4.7 million and $4.2 million, respectively, as of the respective vesting dates. The weighted average grant date fair value of restricted stock units granted in 2011, 2010 and 2009 was $49.35, $42.21 and $33.00, respectively.

 

Long-Term Incentive Plan—Deferred Compensation Stock Units—Certain U.S. Cellular employees may elect to defer receipt of all or a portion of their annual bonuses and to receive a company matching contribution on the amount deferred. All bonus compensation that is deferred by employees electing to participate is immediately vested and is deemed to be invested in U.S. Cellular Common Share stock units. The amount of U.S. Cellular's matching contribution depends on the portion of the annual bonus that is deferred. Participants receive a 25% match for amounts deferred up to 50% of their total annual bonus and a 33% match for amounts that exceed 50% of their total annual bonus; such matching contributions also are deemed to be invested in U.S. Cellular Common Share stock units.

 

The total fair value of deferred compensation stock units that vested during 2011 was less than $0.1 million, the fair values of units vested during 2010 and 2009 was $0.4 million and $0.1 million, respectively. The weighted average grant date fair value of deferred compensation stock units granted in 2011, 2010 and 2009 was $48.72, $40.76 and $33.58, respectively. As of December 31, 2011, there were 3,000 vested but unissued deferred compensation stock units valued at $0.1 million.

 

Employee Stock Purchase Plan—The U.S. Cellular 2009 Employee Stock Purchase Plan became effective January 1, 2009. All remaining shares reserved under this plan were issued and the plan was terminated in the fourth quarter of 2011, in advance of its original termination date of December 31, 2013. Under this plan, eligible employees of U.S. Cellular and its subsidiaries could purchase a limited number of U.S. Cellular Common Shares on a quarterly basis. U.S. Cellular employees were also eligible to participate in the TDS Employee Stock Purchase Plan before this was terminated in the fourth quarter of 2011.

 

Under these plans, the per share cost to participants was 85% of the market value of the U.S. Cellular Common Shares or TDS Special Common Shares as of the issuance date. The employee stock purchase plans were considered compensatory plans; therefore, recognition of compensation cost for stock issued under these plans was required. Compensation cost is measured as the difference between the cost of the shares to plan participants and the market value of the shares on the date of issuance.

 

Compensation of Non-Employee Directors—U.S. Cellular issued 6,600, 9,000 and 5,200 Common Shares in 2011, 2010 and 2009, respectively, under its Non-Employee Director compensation plan.

 

Stock-Based Compensation Expense

 

The following table summarizes stock-based compensation expense recognized during 2011, 2010 and 2009:

 

 

Year Ended December 31,2011  2010  2009 
(Dollars in thousands)           
Stock option awards $9,549  $7,179  $7,024 
Restricted stock unit awards  10,037   10,056   8,640 
Deferred compensation matching stock unit awards  12   165   151 
Awards under employee stock purchase plan  255   314   241 
Awards under Non-Employee Director compensation plan  330   330   306 
Total stock-based compensation, before income taxes  20,183   18,044   16,362 
Income tax benefit  (7,581)  (6,812)  (6,154)
Total stock-based compensation expense, net of income taxes $12,602  $11,232  $10,208 

The following table provides a summary of the stock-based compensation expense included in the Consolidated Statement of Operations for the years ended:

December 31, 2011  2010  2009
(Dollars in thousands)        
Selling, general and administrative expense$17,538 $16,009 $14,512
System operations 2,645  2,035  1,850
Total stock-based compensation expense$20,183 $18,044 $16,362

At December 31, 2011, unrecognized compensation cost for all U.S. Cellular stock-based compensation awards was $24.1 million and is expected to be recognized over a weighted average period of 2.0 years.

 

U.S. Cellular's tax benefits realized from the exercise of stock options and other awards totaled $4.6 million in 2011.