Entergy 2005 Annual Report Download - page 85

ENTERGY CORPORATION AND SUBSIDIARIES 2005
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NOTES to CONSOLIDATED FINANCIAL STATEMENTS continued
Entergy Corporation reissues treasury shares to meet the require-
ments of the Stock Plan for Outside Directors (Directors’ Plan), the
Equity Ownership Plan of Entergy Corporation and Subsidiaries
(Equity Ownership Plan), the Equity Awards Plan of Entergy
Corporation and Subsidiaries, and certain other stock benefit plans.
The Directors’ Plan awards to non-employee directors a portion of
their compensation in the form of a fixed number of shares of
Entergy Corporation common stock.
Equity Compensation Plan Information
Entergy grants stock options, equity awards, and incentive awards
to key employees of the Entergy subsidiaries under the Equity
Ownership Plan which is a shareholder-approved stock-based
compensation plan.
Stock Options
Stock options are granted at exercise prices not less than market
value on the date of grant. The majority of options granted in 2005,
2004, and 2003 will become exercisable in equal amounts on each of
the first three anniversaries of the date of grant. Unless they are
forfeited previously under the terms of the grant, options expire
ten years after the date of the grant if they are not exercised.
Stock-based compensation expense included in earnings applicable
to common stock, net of related tax effects, for 2005 is $7.8 million.
There was no effect on net income in 2004 or 2003.
Entergy determines the fair value of the stock option grants made
in 2005, 2004, and 2003 by considering factors such as lack of mar-
ketability, stock retention requirements, and regulatory restrictions
on exercisability. The fair value valuations comply with SFAS 123R,
“Share-Based Payment,” which was issued in December 2004 and is
effective in the first quarter 2006. The stock option weighted-average
assumptions used in determining the fair values were as follows:
2005 2004 2003
Stock price volatility 18.8% 23.1% 26.3%
Expected term in years 3 6.3 6.2
Risk-free interest rate 3.6% 3.2% 3.3%
Dividend yield 3.1% 3.3% 3.3%
Dividend payment $2.16 $1.80 $1.40
Stock option transactions are summarized as follows:
2005 2004 2003
Number Average Number Average Number Average
of Options Exercise Price of Options Exercise Price of Options Exercise Price
Beginning-of-year balance 12,310,077 $41.88 15,429,383 $38.64 19,943,114 $35.85
Options granted 1,835,218 $69.37 1,898,098 $58.63 2,936,236 $44.98
Options exercised (3,135,396) $40.11 (4,541,053) $38.07 (6,927,000) $33.12
Options forfeited/expired (154,440) $59.16 (476,351) $39.94 (522,967) $40.98
End-of-year balance 10,855,459 $46.80 12,310,077 $41.88 15,429,383 $38.64
Options exercisable at year-end 7,397,622 $40.21 7,162,884 $37.25 6,153,043 $34.82
Weighted-average fair value
of options at time of grant $8.17 $7.76 $6.86
The following table summarizes information about stock options outstanding as of December 31, 2005:
Options Outstanding Options Exercisable
Weighted-
Range of As of Average Remaining Weighted-Average Number Exercisable Weighted-Average
Exercise Prices 12/31/2005 Contractual Life-Years Exercise Price at 12/31/2005 Exercise Price
$23 – $33.99 1,274,410 4.1 $25.98 1,274,410 $25.98
$34 – $44.99 5,940,768 6.1 $41.12 5,260,842 $40.69
$45 – $55.99 211,394 4.6 $49.39 207,360 $49.43
$56 – $66.99 1,688,091 8.1 $58.63 532,714 $58.69
$67 – $78.99 1,740,796 8.9 $69.64 122,296 $71.92
$23 – $78.99 10,855,459 6.6 $46.80 7,397,622 $40.21
NOTE 7. COMMON EQUITY
COMMON STOCK
Treasury Stock
Treasury stock activity for Entergy for 2005 and 2004 is as follows ($ in thousands):
2005 2004
Treasury Shares Cost Treasury Shares Cost
Beginning Balance, January 1 31,345,028 $1,432,019 19,276,445 $ 561,152
Repurchases 12,280,500 878,188 16,631,800 1,017,996
Issuances:
Employee Stock-Based Compensation Plans (2,965,006) (147,888) (4,555,897) (146,877)
Directors’ Plan (15,920) (359) (7,320) (252)
Ending Balance, December 31 40,644,602 $2,161,960 31,345,028 $1,432,019