Frontier Communications 2013 Annual Report Download - page 86

elect by December 31 of the prior year whether to receive the cash portion of his or her retainer and/or his or
her stipend in stock units.
As of October 1, 2013, stock units are credited to the director’s account in an amount that is determined as
follows: the total cash value of the fees payable to the director is divided by the closing prices of Frontier
common stock on the grant date of the units. Prior to October 1, 2013, stock units were credited to the
director’s account in an amount that was determined as follows: the total cash value of the fees payable to the
director divided by 85% of the closing prices of Frontier common stock on the grant date of the units. Units are
credited to the director’s account quarterly. Directors must also elect to convert the units to either common
stock (convertible on a one-to-one basis) or cash upon retirement or death.
Dividends are paid on stock units held by directors at the same rate and at the same time as we pay
dividends on shares of our common stock. Dividends on stock units are paid in the form of additional stock
units.
The number of shares of common stock authorized for issuance under the Directors’ Equity Plan is
2,540,761, which includes 540,761 shares that were available for grant under the Deferred Fee Plan on the
effective date of the Directors’ Equity Plan. In addition, if and to the extent that any “plan units” outstanding
on May 25, 2006 under the Deferred Fee Plan are forfeited or if any option granted under the Deferred Fee
Plan terminates, expires, or is cancelled or forfeited, without having been fully exercised, shares of common
stock subject to such “plan units” or options cancelled shall become available under the Directors’ Equity Plan.
At December 31, 2013, there were 1,048,609 shares available for grant. There were 11 directors participating in
the Directors’ Plans during all or part of 2013. In 2013, the total plan units earned were 374,383. In 2012, the
total plan units earned were 306,634. In 2011, the total plan units earned were 197,600. Options granted prior
to the adoption of the Directors’ Equity Plan were granted under the 2000 EIP. At December 31, 2013, 116,630
options were outstanding and exercisable under the Director Plans at a weighted average exercise price of
$11.95.
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.
To the extent directors elect to receive the distribution of their stock unit account in cash, they are
considered liability-based awards. To the extent directors elect to receive the distribution of their stock unit
accounts in common stock, they are considered equity-based awards. Compensation expense for stock units that
are considered equity-based awards is based on the market value of our common stock at the date of grant.
Compensation expense for stock units that are considered liability-based awards is based on the market value of
our common stock at the end of each period.
In connection with the Director Plans, compensation costs associated with the issuance of stock units were
$2.1 million, $0.8 million and $(0.6) million in 2013, 2012 and 2011, respectively. Cash compensation
associated with the Director Plans was $0.7 million in 2013, 2012 and 2011, respectively. These costs are
recognized in “Other operating expenses”.
F-24
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements