Frontier Communications 2006 Annual Report Download - page 78

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CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The number of options exercisable at December 31, 2005 and 2004 were 6,548,000 and 9,235,000, with a
weighted average exercise price of $11.92 and $11.57, respectively.
Cash received upon the exercise of options during 2006, 2005 and 2004 was $27,200,000, $47,550,000 and
$84,522,000 respectively. Total remaining unrecognized compensation cost associated with unvested stock
options at December 31, 2006 was $771,000 and the weighted average period over which this cost is expected to
be recognized is approximately one year.
For purposes of determining compensation expense, the fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model which requires the use of various assumptions
including expected life of the option, expected dividend rate, expected volatility, and risk-free interest rate. The
expected life (estimated period of time outstanding) of stock options granted was estimated using the historical
exercise behavior of employees. The risk free interest rate is based on the U.S. Treasury yield curve in effect at
the time of the grant. Expected volatility is based on historical volatility for a period equal to the stock option’s
expected life, calculated on a monthly basis.
The following table presents the weighted average assumptions used for grants in 2006 and 2005. There
were no option grants during 2004.
2006 2005
Dividend yield ..................................... 7.55% 7.72%
Expected volatility .................................. 44% 46%
Risk-free interest rate ................................ 4.89% 4.16%
Expected life ....................................... 5years 6 years
The following summary presents information regarding unvested restricted stock and changes with regard to
restricted stock under the MEIP and the EIPs:
Number of
Shares
Weighted
Average
Grant Date
Fair Value
Aggregate
Fair Value at
December 31,
2006
Balance at January 1, 2004 ........................ 1,159,000 $ 10.18
Restricted stock granted ...................... 2,172,000 12.68 $ 29,953,000
Restricted stock vested ....................... (1,638,000) 11.32 $ 22,592,000
Restricted stock forfeited ..................... (7,000) 12.59
Balance at December 31, 2004 ..................... 1,686,000 12.29 $ 23,253,000
Restricted stock granted ...................... 352,000 13.11 $ 4,305,000
Restricted stock vested ....................... (491,000) 12.27 $ 6,000,000
Restricted stock forfeited ..................... (91,000) 12.58
Balance at December 31, 2005 ..................... 1,456,000 12.47 $ 17,808,000
Restricted stock granted ...................... 732,000 12.87 $ 10,494,000
Restricted stock vested ....................... (642,000) 12.08 $ 9,226,000
Restricted stock forfeited ..................... (372,000) 12.60
Balance at December 31, 2006 ..................... 1,174,000 $ 12.89 $ 16,864,000
For purposes of determining compensation expense, the fair value of each restricted stock grant is estimated
based on the average of the high and low market price of a share of our common stock on the date of grant. Total
remaining unrecognized compensation cost associated with unvested restricted stock awards at December 31,
2006 was $9,934,000 and the weighted average period over which this cost is expected to be recognized is
approximately two years.
F-30