Frontier Communications 2007 Annual Report Download - page 81

CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 stock option grants in 2006 and
2005. No stock option grants were issued in 2007.
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
Balance at January 1, 2005 ..................................... 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
Restricted stock granted .................................... 722,000 $15.04 $ 9,187,000
Restricted stock vested .................................... (587,000) $12.94 $ 7,465,000
Restricted stock forfeited ................................... (100,000) $13.95
Balance at December 31, 2007 .................................. 1,209,000 $14.06 $15,390,000
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,
2007 was $12.7 million and the weighted average period over which this cost is expected to be recognized is
approximately two to three years.
Non-Employee Directors’ Compensation Plans
Upon commencement of his or her service on the Board of Directors, each non-employee director receives a
grant of 10,000 stock options. These options are currently awarded under the Directors’ Equity Plan. Prior to
effectiveness of the Directors’ Equity Plan on May 25, 2006, these options were awarded under the 2000 EIP.
The exercise price of these options, which become exercisable six months after the grant date, is the fair market
F-31