Windstream 2006 Annual Report Download - page 158

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Employee Benefit Plans and Postretirement Benefits, Continued:
The Company also sponsors employee savings plans under section 401(k) of the Internal Revenue Code, which
covers substantially all salaried employees and certain bargaining unit employees. Employees may elect to
contribute to the plans a portion of their eligible pretax compensation up to certain limits as specified by the plans
and by the Internal Revenue Service. Prior to January 1, 2006, the Company made annual contributions to the plan.
Effective January 1, 2006, the plan was amended to provide for an employer matching contribution of up to 4
percent of a participant’s pretax contributions to the plan. The expense recorded by the Company related to these
plans amounted to $8.8 million in 2006 and $1.3 million in both 2005 and 2004. The expenses related to the profit-
sharing and 401(k) plans are included in cost of services and selling, general, administrative and other expenses in
the consolidated statements of income.
On December 31, 2006, the Company terminated the profit-sharing plan and will merge the plan assets into its
employee savings plan. Pursuant to the merger of these plans, the Company will no longer contribute to employee
profit sharing accounts, and will increase its matching contribution to employee savings accounts from a maximum
of 4% to a maximum of 6% of employee pretax contributions.
9. Stock-Based Compensation Plans:
Under the Company’s stock-based compensation plans, Windstream may issue restricted stock and other equity
securities to directors, officers and other key employees. The maximum number of shares available for issuance
under the Windstream 2006 Equity Incentive Plan is 10.0 million shares. As of December 31, 2006, the balance
available for grant was approximately 6.9 million shares.
In August 2006, the Windstream Board of Directors approved three grants of restricted stock awards to officers
and employees of the Company, which had aggregate fair values on the date of grant of $19.7 million, $11.1
million and $8.4 million, respectively. The first grant was a one-time grant made to all salaried, non-bargaining,
former Alltel employees which vests three years from the date of grant. The second grant represents our standard
annual grant made to officers and certain management employees as a key component of those employee groups’
annual incentive compensation plan. The third grant was made to any former Alltel employees who forfeited Alltel
stock options upon the spin. The second and third grants each vest in equal increments over a three year period
following the date of grant. Each of these three grants of restricted stock has only a service condition, as indicated
by the vesting period, with the exception of the annual grant of shares to the Chief Executive Officer (“CEO”).
The shares granted to the CEO vest in three equal tranches on each of August 1 2007, 2008 and 2009, but only if
certain operating targets are achieved for the period from July 17, 2006 through December 31, 2006; January 1,
2007 through December 31, 2007; and January 1, 2008 through December 31, 2008, respectively. The target for
the first measurement period was established by the compensation committee on August 2, 2006 and was met by
the end of the year. The target for the second measurement period was established by the compensation committee
on February 6, 2007. The target for the last measurement period will be established within 90 days of January 1,
2008.
In addition, the Windstream Board of Directors approved a grant of restricted stock awards to the six
non-employee directors, which vests one year from the date of grant and which had an aggregate fair value on the
date of grant of $0.6 million. The cost of each of the restricted stock awards was determined based on the fair
market value of the shares on the date of grant, and will be expensed ratably over the vesting period.
The Company also assumed restricted stock awards, that had been granted by Valor prior to the merger to
employees that were retained by Windstream. Based on the closing stock price on July 17, 2006 of $11.50, these
shares had an aggregate fair value of $2.1 million, and they vest either as employees are terminated or by
January 1, 2008 for employees who remain with the Company. As of December 31, 2006 approximately 43,000
shares vested with a value of approximately $0.5 million.
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