Windstream 2007 Annual Report Download - page 150

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Employee Benefit Plans and Postretirement Benefits, Continued:
4 percent of a participant’s pretax contributions to the plan. The expense recorded by the Company related to these
plans amounted to $13.3 million, $8.8 million and $1.3 million in 2007, 2006 and 2005, respectively.
Windstream also sponsored a non-contributory defined contribution plan in the form of profit sharing
arrangements for eligible employees, except bargaining unit employees. On December 31, 2006, the Company
terminated the profit sharing plan and merged 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 has
increased its matching contribution to employee savings accounts from a maximum of 4 percent to a maximum of
6 percent of employee pretax contributions. Prior to the spin off from Alltel, Windstream employees participated
in the Alltel-sponsored plan and the amount of profit sharing contributions to the plan was determined by Alltel’s
Board of Directors. Following the spin off and merger, the amount of profit sharing contributions to the plan were
determined annually by Windstream’s Board of Directors. No profit sharing expense was incurred by Windstream
in 2007. Profit sharing expense amounted to $5.5 million and $4.4 million in 2006 and 2005, respectively. 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.
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, 2007, the balance
available for grant was approximately 6.9 million shares. The cost of each restricted stock award is determined
based on the fair market value of the shares on the date of grant, and is fully expensed over the vesting period.
During 2007, the Windstream Board of Directors approved grants of restricted stock to officers, executives, and
non-employee directors and certain management employees totaling approximately 870,000 common shares with
an aggregate fair value on the dates of grant of approximately $12.8 million. These grants include the standard
annual grants to this employee and director group as a key component of their annual incentive compensation
plan, and a one-time grant to a select group of executive management. Of the shares granted in 2007,
approximately 500,000 shares vest ratably over a three-year service period, and approximately 330,000 shares
contingently vest over a three-year period if performance-based operating targets are met each period. The
operating target for the first vesting period was approved by the Board of Directors on February 6, 2007 and was
met by the end of the year. The Board of Directors approved the operating target for the second vesting period on
February 6, 2008. Management has determined that it is probable that the target will be met for fiscal year 2008.
The target for the last measurement period will be established within 90 days of January 1, 2009. The remaining
40,000 shares granted to non-employee directors vest over a one-year service period.
During 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, and it vests three years from the date of grant. The second grant represents a standard annual
grant made to officers and certain management employees as a key component of their annual incentive
compensation plan. The third grant was made to any former Alltel employees who forfeited Alltel stock options
upon the spin off. 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 in 2006 had only a service condition, as indicated by the vesting
period, with the exception of the shares granted to the Chief Executive Officer (“CEO”). The shares granted to the
CEO during 2006 vest in three equal tranches on each of August 1, 2007, 2008 and 2009, but only if certain
operating targets are achieved for the periods 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 targets for the
first and second measurement periods were established by the compensation committee on August 2, 2006 and
February 6, 2007, respectively and were each met by the end of their respective measurement periods. The target
for the last measurement period was established February 6, 2008, and management has determined that it is
probable that the target will be met in 2008. In addition, the Windstream Board of Directors approved a grant of
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