notes to consolidated financial statements

Note 10 (2 of 3)

Stock-Based Compensation

Verizon Wireless’ Long-Term Incentive Plan

The Verizon Wireless Long-Term Incentive Plan (the Wireless Plan) provides compensation opportunities to eligible employees of Verizon Wireless (the Partnership). Under the Wireless Plan, Value Appreciation Rights (VARs) were granted to eligible employees. As of December 31, 2011, all VARs were fully vested. We have not granted new VARs since 2004.

VARs reflect the change in the value of the Partnership, as defined in the Wireless Plan. Similar to stock options, the valuation is determined using a Black-Scholes model. Once VARs become vested, employees can exercise their VARs and receive a payment that is equal to the difference between the VAR price on the date of grant and the VAR price on the date of exercise, less applicable taxes. All outstanding VARs are fully exercisable and have a maximum term of 10 years. All VARs were granted at a price equal to the estimated fair value of the Partnership, as defined in the Wireless Plan, at the date of the grant.

The following table summarizes the assumptions used in the Black-Scholes model during 2011:

 

Ranges

Risk-free rate

0.05% – 0.57%

Expected term (in years)

0.02 – 1.50

Expected volatility

29.47% – 48.30%

The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of the measurement date. Expected volatility was based on a blend of the historical and implied volatility of publicly traded peer companies for a period equal to the VARs expected life ending on the measurement date.

The following table summarizes the Value Appreciation Rights activity:

(shares in thousands)

VARs

 

Weighted-Average
Grant-Date Fair Value

 

Outstanding rights, January 1, 2009

28,244

 

 

$

16.54

 

Exercised

(11,442

)

 

 

16.53

 

Cancelled/Forfeited

(211

)

 

 

17.63

 

Outstanding rights, December 31, 2009

16,591

 

 

 

16.54

 

Exercised

(4,947

)

 

 

24.47

 

Cancelled/Forfeited

(75

)

 

 

22.72

 

Outstanding rights, December 31, 2010

11,569

 

 

 

13.11

 

Exercised

(3,303

)

 

 

14.87

 

Cancelled/Forfeited

(52

)

 

 

14.74

 

Outstanding rights, December 31, 2011

8,214

 

 

 

12.39

 

During 2011, 2010 and 2009, we paid $0.1 billion, $0.1 billion and $0.2 billion, respectively, to settle VARs classified as liability awards.

Stock-Based Compensation Expense

After-tax compensation expense for stock-based compensation related to RSUs, PSUs, and VARs described above included in net income attributable to Verizon was $0.5 billion, $0.5 billion and $0.5 billion for 2011, 2010 and 2009, respectively.