OG&E 2009 Annual Report Download - page 75

2009 2008
Carrying Fair Carrying Fair
December 31 (In millions) Amount Value Amount Value
Price Risk Management Liabilities
Energy Derivative Contracts $ 0.7 $ 0.7 $ --- $ ---
Long-Term Debt
Senior Notes $ 1,406.4 $ 1,492.1 $ 1,406.1 $ 1,327.4
Industrial Authority Bonds 135.4 135.4 135.3 135.3
The carrying value of the financial instruments on the Balance Sheets not otherwise discussed above approximates fair value
except for long-term debt which is valued at the carrying amount. The valuation of the Company’s hedging and energy derivative
contracts was determined generally based on quoted market prices. However, in certain instances where market quotes are not
available, other valuation techniques or models are used to estimate market values. The valuation of instruments also considers the
credit risk of the counterparties. The fair value of the Company’s long-term debt is based on quoted market prices.
4. Stock-Based Compensation
On January 21, 1998, OGE Energy adopted a Stock Incentive Plan (the “1998 Plan”) and in 2003, OGE Energy adopted
another Stock Incentive Plan (the “2003 Plan” that replaced the 1998 Plan). In 2008, OGE Energy adopted, and its shareowners
approved, a new Stock Incentive Plan (the “2008 Plan” and together with the 1998 Plan and the 2003 Plan, the “Plans”). The 2008
Plan replaced the 2003 Plan and no further awards will be granted under the 2003 Plan or the 1998 Plan. As under the 2003 Plan and
the 1998 Plan, under the 2008 Plan, restricted stock, stock options, stock appreciation rights and performance units may be granted to
officers, directors and other key employees of OGE Energy and its subsidiaries. OGE Energy has authorized the issuance of up to
2,750,000 shares under the 2008 Plan.
The Company recorded compensation expense of approximately $1.4 million pre-tax ($0.9 million after tax), $1.0 million
pre-tax ($0.6 million after tax) and $0.9 million pre-tax ($0.6 million after tax) in 2009, 2008 and 2007, respectively, related to the
Company’s portion of OGE Energy’s share-based payments. Also, during 2009, OGE Energy converted 171,670 performance units
based on a payout ratio of 135.31 percent of the target number of performance units granted in February 2006, of which 39,548
performance units related to the Company’s portion. These performance units were settled in OGE Energy’s common stock.
OGE Energy issues new shares to satisfy stock option exercises and payouts of earned performance units. In 2009, 2008 and
2007, there were 324,651 shares, 875,434 shares and 496,565 shares, respectively, of new common stock issued pursuant to OGE
Energy’s Plans related to exercised stock options and payouts of earned performance units, of which 57,439 shares, 38,684 shares and
129,568 shares, respectively, related to the Company’s employees.
Performance Units
Under the Plans, OGE Energy has issued performance units which represent the value of one share of OGE Energy’s
common stock. The performance units provide for accelerated vesting if there is a change in control (as defined in the Plans). Each
performance unit is subject to forfeiture if the recipient terminates employment with OGE Energy or a subsidiary prior to the end of
the award cycle (which, with the exception of one award of performance units to a new officer, is three years) for any reason other
than death, disability or retirement. In the event of death, disability or retirement, a participant will receive a prorated payment based
on such participant’s number of full months of service during the award cycle, further adjusted based on the achievement of the
performance goals during the award cycle.
The performance units granted based on total shareholder return (“TSR”) are contingently awarded and will be payable in
shares of OGE Energy’s common stock subject to the condition that the number of performance units, if any, earned by the employees
upon the expiration of an award cycle (i.e., three-year cliff vesting period, other than for one award which had a two-year cliff vesting
period) is dependent on OGE Energy’s TSR ranking relative to a peer group of companies. The performance units granted based on
earnings per share (“EPS”) are contingently awarded and will be payable in shares of OGE Energy’s common stock based on OGE
Energy’s EPS growth over an award cycle (i.e., three-year cliff vesting period, other than for one award which had a two-year cliff
vesting period) compared to a target set at the time of the grant by the Compensation Committee of OGE Energy’s Board of Directors.
All of the Company’s performance units are classified as equity. If there is no or only a partial payout for the performance units at the
end of the award cycle, the unearned performance units are cancelled. In 2009, 2008 and 2007, OGE Energy awarded 422,017,
242,503 and 162,730 performance units,
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