Stock Plans

12 Months Ended

Dec. 31, 2019

(14)

Stock Plans:

At December 31, 2019, we have three stock-based compensation plans under which grants were made and awards remained outstanding. No further awards may be granted under two of the plans: the 2013 Equity Incentive Plan (the 2013 EIP) and the Deferred Fee Plan and the Directors’ Equity Plan. At December 31, 2019, there were approximately 5,667,000 shares authorized for grant and approximately 3,198,000 shares available for grant under the 2017 Equity Incentive Plan (the 2017 EIP together with the 2013 EIP (the “EIPs”). Our general policy is to issue treasury shares upon the grant of restricted shares and the exercise of options.

2013 and 2017 Equity Incentive Plans

Since the expiration dates of the 2013 EIP on May 10, 2017, no awards have been or may be granted under such plan. Under the 2017 EIP, awards of our common stock may be granted to eligible employees in the form of incentive stock options, non-qualified stock options, SARs, restricted stock, performance shares or other stock-based awards. As discussed under the Non-Employee Directors’ Compensation Plans below, prior to May 25, 2006 non-employee directors received an award of stock options upon commencement of service. No awards may be granted more than 10 years after the effective date (May 10, 2017) of the 2017 EIP plan. The exercise price of stock options and SARs under the EIPs generally are equal to or greater than the fair market value of the underlying common stock on the date of grant. Stock options are not ordinarily exercisable on the date of grant but vest over a period of time (generally four years). Under the terms of the EIPs, subsequent stock dividends and stock splits have the effect of increasing the option shares outstanding, which correspondingly decrease the average exercise price of outstanding options.

Performance Shares/Units

On February 15, 2012, Frontier’s Compensation Committee, in consultation with the other non-management directors of Frontier’s Board of Directors and the Committee’s independent executive compensation consultant, adopted the Frontier Long-Term Incentive Plan (the LTIP). LTIP awards are granted in the form of performance shares or units/cash. The LTIP is currently offered under the EIPs, and participants consist of senior vice presidents and above. The LTIP awards have performance, market and time-vesting conditions.

Beginning in 2012, during the first 90 days of a three year performance period (a Measurement Period), a target number of performance shares or units are awarded to each LTIP participant with respect to the Measurement Period. The performance metrics under the LTIP are (1) annual targets for operating cash flow or adjusted free cash flow per share based on a goal set during the first 90 days of each year in the Measurement Period and (2) an overall performance “modifier” set during the first 90 days of the Measurement Period, based on Frontier’s total return to stockholders (i.e., Total Shareholder Return or TSR) relative to the Integrated Telecommunications Services Group (GICS Code 50101020) for the Measurement Period. Operating cash flow or adjusted free cash flow per share performance is determined at the end of each year and the annual results will be averaged at the end of the Measurement Period to determine the preliminary number of shares earned under the LTIP award. The TSR performance measure is then applied to decrease or increase payouts based on Frontier’s three year relative TSR performance. LTIP awards, to the extent earned, will be paid out in the form of common stock or cash shortly following the end of the Measurement Period.

The number of shares of common stock or units earned at the end of each Measurement Period may be more or less than the number of target performance shares or units granted as a result of operating cash flow or adjusted free cash flow per share and TSR performance. An executive must maintain a satisfactory performance rating during the Measurement Period and must be employed by Frontier at the end of the Measurement Period in order for the award to vest. The Compensation Committee will determine the number of shares or units earned for each Measurement Period in February of the year following the end of the Measurement Period.

The following summary presents information regarding LTIP target performance shares as of December 31, 2019 and changes during the three years then ended with regard to LTIP shares:

	Number of Shares (in thousands)
Balance at December 31, 2016		190
LTIP target performance shares granted		211
LTIP target performance shares earned		(41	)
LTIP target performance shares forfeited		(54	)
Balance at December 31, 2017		306
LTIP target performance shares granted		284
LTIP target performance shares earned		(18	)
LTIP target performance shares forfeited		(75	)
Balance at December 31, 2018		497
LTIP target performance shares/units granted		-
LTIP target performance shares/units earned		(381	)
LTIP target performance shares/units forfeited		(20	)
Balance at December 31, 2019		96

For purposes of determining compensation expense, the fair value of each performance share is measured at the end of each reporting period and, therefore, will fluctuate based on the price of Frontier common stock as well as performance relative to the targets. Frontier recognized an expense, included in “Selling, general, and administrative expenses” of $4 million, $5 million, and $1 million during 2019, 2018 and 2017, respectively, for the LTIP.

Restricted Stock

The following summary presents information regarding unvested restricted stock as of December 31, 2019 and changes during the three years then ended with regard to restricted stock under the 2009 EIP, 2013 EIP, and 2017 EIP:

	Number of Shares			Weighted Average Grant Date Fair Value		Aggregate Fair Value
	(in thousands)			(per share)		(in millions)
Balance at December 31, 2016		549		$	78.00	$	28
Restricted stock granted		454		$	47.77	$	3
Restricted stock vested		(240	)	$	80.86	$	2
Restricted stock forfeited		(130	)	$	60.92
Balance at December 31, 2017		633		$	58.63	$	4
Restricted stock granted		2,023		$	8.26	$	5
Restricted stock vested		(221	)	$	66.82	$	(1	)
Restricted stock forfeited		(577	)	$	16.47
Balance at December 31, 2018		1,858		$	16.02	$	4
Restricted stock granted		105		$	2.00	$	-
Restricted stock vested		(1,039	)	$	19.05	$	(1	)
Restricted stock forfeited		(24	)	$	28.30
Balance at December 31, 2019		900		$	10.57	$	1

For purposes of determining compensation expense, the fair value of each restricted stock grant is estimated based on the average of the high and low market price of a share of our common stock on the date of grant. Total remaining unrecognized compensation cost associated with unvested restricted stock awards that is deferred at December 31, 2019 was $4 million and the weighted average vesting period over which this cost is expected to be recognized is less than 1 year.

We have granted restricted stock awards to employees in the form of our common stock. None of the restricted stock awards may be sold, assigned, pledged or otherwise transferred, voluntarily or involuntarily, by the employees until the restrictions lapse, subject to limited exceptions. The restrictions are time-based. Compensation expense, recognized in “Selling, general and administrative expenses”, of $11 million, $13 million and $18 million for the years ended December 31, 2019, 2018 and 2017, respectively, has been recorded in connection with these grants.

Non-Employee Directors’ Compensation Plans

As of October 1, 2013, stock units are credited to the director’s account in an amount that is determined as follows: the total cash value of the fees payable to the director is divided by the closing price of Frontier common stock on the grant date of the units. Units are credited to the director’s account quarterly. Directors must also elect to convert the units to either common stock (convertible on a one-to-one basis) or cash upon retirement or death.

Dividends were paid on stock units held by directors at the same rate and at the same time as we paid dividends on shares of our common stock during 2017. Dividends on stock units were paid in the form of additional stock units in 2017.

There were 13 directors participating in the Director Plans during all or part of 2019. The total plan units earned were 155,045, 183,791 and 94,034 in 2019, 2018 and 2017, respectively.

Since the directors have the option to receive distributions from their stock units in cash, they are considered liability-based awards. Prior to adoption of ASU 2018-07, “Compensation – Stock Compensation (ASC 718): Improvements to Non-employee Share-Based payment accounting;” compensation expense was based on the current market value of our common stock at each reporting date. Upon adoption, compensation expense for all unvested awards was based on the market value of our common stock at the date of adoption and compensation expense for awards granted following adoption were based on the market value of our common stock at the grant date for each award.

In connection with the Director Plans, there were compensation costs associated with the issuance of stock units of less than $1 million in 2019, $(1) million in 2018 and $(5) million in 2017. Cash compensation associated with the Director Plans was $4 million in 2019, and $1 million in both 2018 and 2017. These costs are recognized in “Selling, general and administrative expenses”.