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Verizon 2005 Interactive Annual Report
note 14
STOCK INCENTIVE PLANS

We determined stock-option related employee compensation expense for 2004 and 2003 using the Black-Scholes option-pricing model based on the following weighted-average assumptions:
    2004     2003  
Dividend yield     4.2 %   4.0 %
Expected volatility     31.3     30.9  
Risk-free interest rate     3.3     3.4  
Expected lives (in years)     6   6

We did not grant options during 2005.

The weighted-average value of options granted during 2004 and 2003 was $7.88 and $8.41, respectively. Our stock incentive plans are described below:

Fixed Stock Option Plans
We have fixed stock option plans for substantially all employees. Options to purchase common stock were granted at a price equal to the market price of the stock at the date of grant. The options generally vest over three years and have a maximum term of ten years.

This table summarizes our fixed stock option plans:
Stock Options   Weighted-Average  
  (in thousands ) Exercise Price  
Outstanding, January 1, 2003   261,437   $ 48.32  
   Granted   22,207     38.94  
   Exercised   (4,634 )   31.29  
   Canceled/forfeited   (7,917 )   47.87  
Outstanding, December 31, 2003   271,093     47.86  
   Granted   16,824     36.75  
   Exercised   (10,163 )   29.90  
   Canceled/forfeited   (6,364 )   49.69  
Outstanding, December 31, 2004   271,390     47.80  
   Granted   –     –  
   Exercised   (1,095 )   29.74  
   Canceled/forfeited   (19,319 )   51.36  
Outstanding, December 31, 2005   250,976     47.62  
Options exercisable, December 31,            
   2003   233,374     48.27  
   2004   239,093     48.91  
   2005   236,158     48.27  
The following table summarizes information about fixed stock options outstanding as of December 31, 2005:
  Stock Options Outstanding   Stock Options Exercisable  
      Weighted - Weighted -     Weighted -
  Shares   Average   Average   Shares   Average  
Range of Exercise Prices (in thousands ) Remaining Life   Exercise Price   (in thousands ) Exercise Price  
$ 20.00 – 29.99   32     6.74  years $ 27.25     32   $ 27.25  
30.00 – 39.99   56,085     5.24   36.73     41,281     36.52  
40.00 – 49.99   98,448     4.65   45.33     98,435     45.33  
50.00 – 59.99   95,087     4.11   56.22     95,086     56.22  
60.00 – 69.99   1,324     3.79   62.11     1,324     62.11  
Total   250,976     4.57   47.62     236,158     48.27  

Performance-Based Shares
In 2005, stock compensation awards consisted of performance-based stock units and restricted stock units that vest over three years. The 2005 performance-based stock units and restricted stock units will be paid in cash upon vesting. The expense associated with these awards is disclosed as part of other stock-based compensation (see Note 2).

In 2004, stock compensation awards consisted of stock options, performance-based stock units and restricted stock units that vest over three years. The 2004 performance-based stock units and restricted stock units will be paid in cash upon vesting. The expense associated with these awards is disclosed as part of other stock-based compensation (see Note 2).

In 2004, stock compensation awards consisted of stock options, performance-based stock units and restricted stock units that vest over three years. The 2004 performance-based stock units and restricted stock units will be paid in cash upon vesting. The expense associated with these awards is disclosed as part of other stock-based compensation (see Note 2).

In 2003, stock compensation awards consisted of stock options and performance-based stock units that vest over three years. This was the first grant of performance based shares since 2000, when certain key Verizon employees were granted restricted stock units that vest over a three to five year period.

The number of shares accrued for the performance-based share programs was 5,521,000, 5,993,000 and 6,707,000 at December 31, 2005, 2004 and 2003, respectively.
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* This is an interactive electronic version of Verizon’s 2005 Annual Report to Shareholders, and it is intended to be complete and accurate. The contents of this version are qualified in their entirety by reference to the printed version. A reproduction of the printed version is available in PDF format on this website.