VERIZON COMMUNICATIONS INC | 2013 | FY | 3


Note 10

Stock-Based Compensation

Verizon Communications Long-Term Incentive Plan

The Verizon Communications Inc. Long-Term Incentive Plan (the Plan) permits the granting of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance stock units and other awards. The maximum number of shares available for awards from the Plan is 119.6 million shares.

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 equity awards because the RSUs will be paid in Verizon common stock upon vesting. The RSU equity awards are measured using the grant date fair value of Verizon common stock and are not remeasured at the end of each reporting period. Dividend equivalent units are also paid to participants at the time the RSU award is paid, and in the same proportion as the RSU award.

Performance Stock Units

The Plan also provides for grants of Performance Stock Units (PSUs) that generally vest at the end of the third year after the grant. As defined by the Plan, the Human Resources Committee of the Board of Directors determines the number of PSUs a participant earns based on the extent to which the corresponding performance goals have been achieved over the three-year performance cycle. 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 common stock as well as performance relative to the targets. 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 granted and cancelled activity for the PSU award includes adjustments for the performance goals achieved.

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

 

(shares in thousands)    Restricted Stock
Units
    Performance Stock
Units
 

Outstanding January 1, 2011

     20,923       32,380  

Granted

     6,667       10,348  

Payments

     (7,600     (12,137

Cancelled/Forfeited

     (154     (2,977
  

 

 

 

Outstanding December 31, 2011

     19,836       27,614  

Granted

     6,350       20,537  

Payments

     (7,369     (8,499

Cancelled/Forfeited

     (148     (189
  

 

 

 

Outstanding December 31, 2012

     18,669       39,463  

Granted

     4,950       7,470  

Payments

     (7,246     (22,703

Cancelled/Forfeited

     (180     (506
  

 

 

 

Outstanding December 31, 2013

     16,193       23,724  
  

 

 

 

As of December 31, 2013, unrecognized compensation expense related to the unvested portion of Verizon’s RSUs and PSUs was approximately $0.4 billion and is expected to be recognized over approximately two years.

The RSUs granted in 2013 and 2012 have weighted-average grant date fair values of $47.96 and $38.67 per unit, respectively. During 2013, 2012 and 2011, we paid $1.1 billion, $0.6 billion and $0.7 billion, respectively, to settle RSUs and PSUs classified as liability awards.

 

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, 2013, 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 2013:

 

      End of Period  

Risk-free rate

     0.11%        

Expected term (in years)

     0.12          

Expected volatility

     43.27%        

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, 2011

     11,569     $ 13.11  

Exercised

     (3,303     14.87  

Cancelled/Forfeited

     (52     14.74  
  

 

 

   

Outstanding rights, December 31, 2011

     8,214       12.39  

Exercised

     (3,427     10.30  

Cancelled/Forfeited

     (21     11.10  
  

 

 

   

Outstanding rights, December 31, 2012

     4,766       13.89  

Exercised

     (1,916     13.89  

Cancelled/Forfeited

     (3     13.89  
  

 

 

   

Outstanding rights, December 31, 2013

     2,847       13.89  
  

 

 

   

During 2013, 2012 and 2011, we paid $0.1 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 $0.4 billion, $0.7 billion and $0.5 billion for 2013, 2012 and 2011, respectively.

Stock Options

The Plan provides for grants of stock options to participants at an option price per share of no less than 100% of the fair market value of Verizon common stock on the date of grant. Each grant has a 10-year life, vesting equally over a three-year period, starting at the date of the grant. We have not granted new stock options since 2004.

 

The following table summarizes Verizon’s stock option activity:

 

(shares in thousands)    Stock Options     Weighted-
Average
Exercise
Price
 

Outstanding, January 1, 2011

     56,844     $ 44.25  

Exercised

     (7,104     35.00  

Cancelled/Forfeited

     (21,921     51.06  
  

 

 

   

Outstanding, December 31, 2011

     27,819       41.24  

Exercised

     (7,447     35.20  

Cancelled/Forfeited

     (17,054     45.15  
  

 

 

   

Outstanding, December 31, 2012

     3,318       34.69  

Exercised

     (2,253     34.85  

Cancelled/Forfeited

     (82     34.49  
  

 

 

   

Outstanding, December 31, 2013

     983       34.35  
  

 

 

   

All stock options outstanding at December 31, 2013, 2012 and 2011 were exercisable.

The following table summarizes information about Verizon’s stock options outstanding as of December 31, 2013:

 

Range of Exercise Prices    Stock Options
(in thousands)
     Weighted-Average
Remaining Life
(years)
     Weighted-Average
Exercise Price
 

$30.00-39.99

     969        0.1      $ 34.18  

  40.00-49.99

     14        0.1        46.31  
  

 

 

       

  Total

     983        0.1        34.35  
  

 

 

       

The total intrinsic value for stock options outstanding as of December 31, 2013 is not significant. The total intrinsic value of stock options exercised was not significant in 2013 and the associated tax benefits were not significant in 2013, 2012 and 2011. The amount of cash received from the exercise of stock options was $0.1 billion in 2013, $0.3 billion in 2012 and $0.2 billion in 2011. There was no stock option expense for 2013, 2012 and 2011.


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