Notes to Consolidated Financial Statements

NOTE 14 (1 of 3)

STOCK-BASED COMPENSATION

Refer to Note 1 for a discussion of the adoption of SFAS No. 123(R), which was effective January 1, 2006.

Verizon Communications Long Term Incentive Plan

The Verizon Communications Long Term Incentive Plan (the Plan), permits the granting of nonqualified stock options, incentive stock options, restricted stock, restricted stock units, performance shares, performance share units and other awards. The maximum number of shares for awards is 207 million.

Restricted Stock Units

The Plan provides for grants of restricted stock units (RSUs) that generally vest at the end of the third year after the grant. The RSUs are classified as liability awards because the RSUs will be paid in cash upon vesting. The RSU award liability is measured at its fair value at the end of each reporting period and, therefore, will fluctuate based on the performance of Verizon’s stock. Dividend equivalent units are also paid to participants at the time the RSU award is paid.

The following table summarizes Verizon’s Restricted Stock Unit activity:

(shares in thousands)

Restricted Stock Units

 

Weighted-Average Grant-Date Fair Value

 

Outstanding, January 1, 2005

 

525

 

 

$

36.75

 

Granted

 

6,410

 

 

 

36.06

 

Cancelled/Forfeited

 

(66

)

 

 

36.07

 

Outstanding, December 31, 2005

 

6,869

 

 

 

36.12

 

Granted

 

9,116

 

 

 

31.88

 

Cancelled/Forfeited

 

(392

)

 

 

35.01

 

Outstanding, December 31, 2006

 

15,593

 

 

 

33.67

 

Granted

 

6,779

 

 

 

37.59

 

Payments

 

(602

)

 

 

36.75

 

Cancelled/Forfeited

 

(197

)

 

 

34.81

 

Outstanding, December 31, 2007

 

21,573

 

 

 

34.80

 

Performance Share Units

The Plan also provides for grants of performance share units (PSUs) that generally vest at the end of the third year after the grant. The Human Resources Committee of the Board of Directors determines the number of PSUs a participant earns based on Verizon’s Total Shareholder Return (TSR), as defined in the Plan, for a three-year performance cycle relative to the total shareholder returns of: the companies in the industry peer group (60% weight); and the companies in the Standard & Poor’s (S&P) 500 index (40% weight). All payments are subject to approval by the Human Resources Committee. The PSUs are classified as liability awards because the PSU awards are paid in cash upon vesting. The PSU award liability is measured at its fair value at the end of each reporting period and, therefore, will fluctuate based on the price of Verizon’s stock as well as Verizon’s TSR relative to the peer group’s TSR and the S&P 500 TSR. Dividend equivalent units are also paid to participants at the time that the PSU award is determined and paid, and in the same proportion as the PSU award.

The following table summarizes Verizon’s Performance Share Unit activity:

(shares in thousands)

Performance Share Units

 

Weighted-Average Grant-Date Fair Value

 

Outstanding, January 1, 2005

 

10,079

 

 

$

37.50

 

Granted

 

9,300

 

 

 

36.13

 

Cancelled/Forfeited

 

(288

)

 

 

36.91

 

Outstanding, December 31, 2005

 

19,091

 

 

 

36.84

 

Granted

 

14,166

 

 

 

32.05

 

Payments

 

(3,607

)

 

 

38.54

 

Cancelled/Forfeited

 

(1,227

)

 

 

37.25

 

Outstanding, December 31, 2006

 

28,423

 

 

 

34.22

 

Granted

 

10,371

 

 

 

37.59

 

Payments

 

(5,759

)

 

 

36.75

 

Cancelled/Forfeited

 

(900

)

 

 

36.18

 

Outstanding, December 31, 2007

 

32,135

 

 

 

34.80