Entergy 2003 Annual Report Download - page 75

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ENTERGY CORPORATION AND SUBSIDIARIES 2003
Equity Compensation Plan Information
Entergy has two plans that grant stock options, equity
awards, and incentive awards to key employees of the
Entergy subsidiaries. The Equity Ownership Plan is a
shareholder-approved stock-based compensation plan. The
Equity Awards Plan is a Board-approved stock-based com-
pensation plan. Stock options are granted at exercise prices
not less than market value on the date of grant. The majority
of options granted in 2003, 2002, and 2001 will become
exercisable in equal amounts on each of the first three
anniversaries of the date of grant. Options expire ten years
after the date of the grant if they are not exercised.
Beginning in 2001, Entergy began granting most of the
equity awards and incentive awards earned under its stock
benefit plans in the form of performance units, which are
equal to the cash value of shares of Entergy Corporation
common stock at the time of payment. In addition to the
potential for equivalent share appreciation or depreciation,
performance units will earn the cash equivalent of the
dividends paid during the performance period applicable to
each plan. The amount of performance units awarded will
not reduce the amount of securities remaining under the
current authorizations. The costs of equity and incentive
awards, given either as company stock or performance
units, are charged to income over the period of the grant or
restricted period, as appropriate. In 2003, 2002, and 2001,
$45 million, $28 million, and $14 million, respectively, was
charged to compensation expense.
Entergy was assisted by external valuation firms to deter-
mine the fair value of the stock option grants made in 2003.
The fair value applied to the 2003 grants was an average of
two firms’ option valuations, which included adjustments
for factors such as lack of marketability, stock retention
requirements, and regulatory restrictions on exercisability.
In 2002 and 2001, the fair value of each option grant was
estimated on the date of grant using the Black-Scholes
option-pricing model, without any such adjustments. The
stock option weighted-average assumptions used in deter-
mining the fair values were as follows:
2003 2002 2001
Stock price volatility 26.3% 27.2% 26.3%
Expected term in years 6.2 5.0 5.0
Risk-free interest rate 3.3% 4.2% 4.9%
Dividend yield 3.3% 3.2% 3.4%
Dividend payment $1.40 $1.32 $1.26
Stock option transactions are summarized as follows:
2003 2002 2001
Number Average Number Average Number Average
of Options Exercise Price of Options Exercise Price of Options Exercise Price
Beginning-of-year balance 19,943,114 $35.85 17,316,816 $31.06 11,468,316 $25.52
Options granted 2,936,236 44.98 8,168,025 41.72 8,602,300 36.96
Options exercised (6,927,000) 33.12 (4,877,688) 28.62 (2,407,783) 25.85
Options forfeited (522,967) 40.98 (664,039) 36.36 (346,017) 30.35
End-of-year balance 15,429,383 $38.64 19,943,114 $35.85 17,316,816 $31.06
Options exercisable at year-end 6,153,043 $34.82 4,837,511 $31.39 2,923,452 $27.35
Weighted-average fair value
of options at time of grant $6.86 $9.22 $8.14
The following table summarizes information about stock options outstanding as of December 31, 2003:
Options Outstanding Options Exercisable
Weighted- Number
Range of As of Average Remaining Weighted-Average Exercisable Weighted-Average
Exercise Prices 12/31/2003 Contractual Life-Years Exercise Price at 12/31/03 Exercise Price
$18 - $30.99 2,310,500 5.9 $26.35 2,258,750 $26.30
$31 - $42.99 10,286,108 7.7 $39.65 2,048,780 $36.82
$43 - $55.99 2,832,775 8.8 $45.02 1,845,513 $43.04
$18 - $55.99 15,429,383 7.6 $38.64 6,153,043 $34.82