Frontier Communications 2008 Annual Report Download - page 80

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. No
stock option grants were issued in 2007 and 2008 under the MEIP or the EIPs.
2006
Dividend yield .............................................................. 7.55%
Expected volatility .......................................................... 44%
Risk-free interest rate. . . ..................................................... 4.89%
Expected life. . .............................................................. 5 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, 2006 . .............................. 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
Restricted stock granted . . .............................. 887,000 $11.02 $ 7,757,000
Restricted stock vested . . . .............................. (367,000) $13.90 $ 3,209,000
Restricted stock forfeited . .............................. (27,000) $13.39
Balance at December 31, 2008. ........................... 1,702,000 $12.52 $14,876,000
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, 2008 was $15.2 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
value (as defined in the relevant plan) of our common stock on the date of grant. Options granted under the
Directors’ Equity Plan expire on the earlier of the tenth anniversary of the grant date or the first anniversary of
termination of service as a director. Options granted to non-employee directors under the 2000 EIP expire on
the tenth anniversary of the grant date.
Each non-employee director also receives an annual grant of 3,500 stock units. These units are currently
awarded under the Directors’ Equity Plan and prior to effectiveness of that plan, were awarded under the
Deferred Fee Plan. Since the effectiveness of the Directors’ Equity Plan, no further grants have been made
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FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements