SHARE-BASED COMPENSATION

In May 2014, shareholders approved the Company’s 2014 Omnibus Incentive Plan (the “2014 Plan”) which replaced the Company’s 2011 Omnibus Incentive Plan (the “2011 Plan”) for future equity awards granted by the Company. The Company transferred the common shares available under the 2011 Plan to the 2014 Plan. The maximum number of common shares that may be issued to participants under the 2014 Plan is equal to 18,000,000 common shares, plus the number of common shares under the 2011 Plan reserved but unissued and not underlying outstanding awards and the number of common shares becoming available for reuse after awards are terminated, forfeited, cancelled, exchanged or surrendered under the 2011 Plan and the Company’s 2007 Equity Compensation Plan. The Company registered, in the aggregate, 20,000,000 common shares of common stock for issuance under the 2014 Plan. Approximately 17,505,663 shares were available for future grants as of December 31, 2014. The Company uses reserved and unissued common shares to satisfy its obligation under its share-based compensation plans.

The following table summarizes the components and classification of share-based compensation expense related to stock options and RSUs:



	2014		2013		2012
Stock options	$	18.2	$	17.3	$	21.7
RSUs	60.0		28.2		44.5
Share-based compensation expense	$	78.2	$	45.5	$	66.2

Research and development expenses	$	5.6	$	—	$	0.7
Selling, general and administrative expenses	72.6		45.5		65.5
Share-based compensation expense	$	78.2	$	45.5	$	66.2

The increase in share-based compensation expense for the year ended December 31, 2014 was driven primarily by (i) the incremental compensation expense related to the higher fair value for share-based awards granted in 2014 and (ii) the impact of the accelerated vesting in the first half of 2014 related to certain performance-based RSU awards.

In addition, in the second quarter of 2013, certain equity awards held by current non-management directors were modified from units settled in common shares to units settled in cash, which changed the classification from equity awards to liability awards. The resulting reduction in share-based compensation expense of $5.8 million was more than offset by incremental compensation expense of $21.3 million recognized in the second quarter of 2013, which represents the fair value of the awards settled in cash. As the modified awards were fully vested and paid out, no additional compensation expense will be recognized in subsequent periods. The decrease in share-based compensation expense for the year ended December 31, 2013 was also driven by the impact of forfeitures and the accelerated vesting that was triggered in the prior year related to certain performance-based RSU awards.

The Company recognized $17.1 million, $24.2 million, and $12.5 million of tax benefits from stock options exercised in the year ended December 31, 2014, 2013 and 2012 respectively.

Stock Options

All stock options granted by the Company under its 2007 Equity Compensation Plan expire on the fifth anniversary of the grant date and all stock options granted under the 2011 Plan and 2014 Plan expire on the tenth anniversary of the grant date. The exercise price of any stock option granted under its 2007 Equity Compensation Plan is not to be less than the volume-weighted average trading price of the Company’s common shares for the five trading days immediately preceding the date of grant (or, for participants subject to U.S. taxation, on the single trading day immediately preceding the date of grant, whichever is greater). The exercise price of any stock option granted under the 2011 Plan and 2014 Plan will not be less than the closing price per common share preceding the date of grant. Stock options generally vest 25% each year over a four-year period on the anniversary of the date of grant.

The fair values of all stock options granted during the years ended December 31, 2014, 2013 and 2012 were estimated as of the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:



	2014		2013		2012
Expected stock option life (years)⁽¹⁾	5.8		4.0		4.0
Expected volatility⁽²⁾	43.0	%	40.1	%	44.9	%
Risk-free interest rate⁽³⁾	1.8	%	1.0	%	0.5	%
Expected dividend yield⁽⁴⁾	—	%	—	%	—	%

____________________________________


(1)	Determined based on historical exercise and forfeiture patterns.


(2)	Determined based on implied volatility in the market traded options of the Company’s common stock.


(3)	Determined based on the rate at the time of grant for zero-coupon U.S. or Canadian government bonds with maturity dates equal to the expected life of the stock option.


(4)	Determined based on the stock option’s exercise price and expected annual dividend rate at the time of grant.

The Black-Scholes option-pricing model used by the Company to calculate stock option values was developed to estimate the fair value of freely tradeable, fully transferable stock options without vesting restrictions, which significantly differ from the Company’s stock option awards. This model also requires highly subjective assumptions, including future stock price volatility and expected time until exercise, which greatly affect the calculated values.

The following table summarizes stock option activity during the year ended December 31, 2014:



	Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding, January 1, 2014	8.6		$	30.19
Granted	0.3		117.82
Exercised	(0.8	)	21.78
Expired or forfeited	(0.4	)	74.88
Outstanding, December 31, 2014	7.7		$	31.44	4.8	$	852.6
Vested and exercisable, December 31, 2014	5.7		$	17.75	4.0	$	720.6

The weighted-average fair values of all stock options granted in 2014, 2013 and 2012 were $62.15, $30.47 and $19.57, respectively. The total intrinsic values of stock options exercised in 2014, 2013 and 2012 were $87.4 million, $30.4 million and $25.1 million, respectively. Proceeds received on the exercise of stock options in 2014, 2013 and 2012 were $17.2 million, $10.0 million and $23.0 million, respectively.

As of December 31, 2014, the total remaining unrecognized compensation expense related to non-vested stock options amounted to $42.2 million, which will be amortized over the weighted-average remaining requisite service period of approximately 3.4 years. The total fair value of stock options vested in 2014 was $36.3 million (2013 — $26.0 million; 2012 — $36.1 million).

RSUs

RSUs generally vest on the third anniversary date from the date of grant. Annual RSUs granted to non-management directors vest immediately prior to the next Annual Meeting of Shareholders. Pursuant to the applicable unit agreement, certain RSUs may be subject to the attainment of any applicable performance goals specified by the Board of Directors. If the vesting of the RSUs is conditional upon the attainment of performance goals, any RSUs that do not vest as a result of a determination that a holder of RSUs has failed to attain the prescribed performance goals will be forfeited immediately upon such determination. RSUs are credited with dividend equivalents, in the form of additional RSUs, when dividends are paid on the Company’s common shares. Such additional RSUs will have the same vesting dates and will vest under the same terms as the RSUs in respect of which such additional RSUs are credited.

To the extent provided for in a RSU agreement, the Company may, in lieu of all or a portion of the common shares which would otherwise be provided to a holder, elect to pay a cash amount equivalent to the market price of the Company’s common shares on the vesting date for each vested RSU. The amount of cash payment will be determined based on the average market price of the Company’s common shares on the vesting date. The Company’s current intent is to settle vested RSUs through the issuance of common shares.

Time-Based RSUs

Each vested RSU without performance goals (“time-based RSU”) represents the right of a holder to receive one of the Company’s common shares. The fair value of each RSU granted is estimated based on the trading price of the Company’s common shares on the date of grant.

The following table summarizes non-vested time-based RSU activity during the year ended December 31, 2014:



	Time-Based RSUs		Weighted- Average Grant-Date Fair Value
Non-vested, January 1, 2014	0.9		$	39.11
Granted	0.1		137.71
Vested	(0.1	)	54.60
Non-vested, December 31, 2014	0.9		$	51.34

As of December 31, 2014, the total remaining unrecognized compensation expense related to non-vested time-based RSUs amounted to $18.5 million, which will be amortized over the weighted-average remaining requisite service period of approximately 2.8 years. The total fair value of time-based RSUs vested in 2014 was $8.1 million (2013 — $15.2 million; 2012 — $18.0 million).

Performance-Based RSUs

Each vested RSU with performance goals (“performance-based RSU”) represents the right of a holder to receive a number of the Company’s common shares up to a specified maximum. Performance-based RSUs vest upon achievement of certain share price appreciation conditions. If the Company’s performance is below a specified performance level, no common shares will be paid.

The fair value of each performance-based RSU granted during the years ended December 31, 2014, 2013 and 2012 was estimated using a Monte Carlo simulation model, which utilizes multiple input variables to estimate the probability that the performance condition will be achieved.

The fair values of performance-based RSUs granted during the years ended December 31, 2014, 2013 and 2012 were estimated with the following assumptions:



	2014	2013	2012
Contractual term (years)	2.6 - 6.3	2.8 - 4.3	2.9 - 4.3
Expected Company share volatility⁽¹⁾	38.7% - 45.4%	36.1% - 44.4%	42.5% - 52.3%
Risk-free interest rate⁽²⁾	0.8% - 2.3%	0.5% - 1.3%	0.6% - 1.0%

____________________________________


(1)	Determined based on historical volatility over the contractual term of the performance-based RSU.


(2)	Determined based on the rate at the time of grant for zero-coupon U.S. government bonds with maturity dates equal to the contractual term of the performance-based RSUs.

The following table summarizes non-vested performance-based RSU activity during the year ended December 31, 2014:



	Performance- Based RSUs		Weighted- Average Grant-Date Fair Value
Non-vested, January 1, 2014	1.0		$	102.22
Granted	0.5		219.79
Vested	(0.2	)	61.80
Forfeited	(0.1	)	136.59
Non-vested, December 31, 2014	1.2		$	160.44

As of December 31, 2014, the total remaining unrecognized compensation expense related to the non-vested performance-based RSUs amounted to $128.9 million, which will be amortized over the weighted-average remaining requisite service period of approximately 3.1 years. A maximum of 3,065,374 common shares could be issued upon vesting of the performance-based RSUs outstanding as of December 31, 2014.