Entergy 2007 Annual Report Download - page 94

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Entergy Corporation and Subsidiaries 2007
Notes to Consolidated Financial Statements continued
DE F I N E D CO N T R I B U T I O N PL A N S
Entergy sponsors the Savings Plan of Entergy Corporation and
Subsidiaries (System Savings Plan). e System Savings Plan is a
dened contribution plan covering eligible employees of Entergy
and its subsidiaries. e employing Entergy subsidiary makes
matching contributions for all non-bargaining and certain bargaining
employees to the System Savings Plan in an amount equal to 70% of
the participants’ basic contributions, up to 6% of their eligible earnings
per pay period. e 70% match is allocated to investments as directed
by the employee.
Entergy also sponsors the Savings Plan of Entergy Corporation
and Subsidiaries II (established in 2001), the Savings Plan of Entergy
Corporation and Subsidiaries IV (established in 2002), the Savings
Plan of Entergy Corporation and Subsidiaries VI (established in April
2007), and the Savings Plan of Entergy Corporation and Subsidiaries
VII (established in April 2007) to which matching contributions are
also made. e plans are dened contribution plans that cover eligible
employees, as dened by each plan, of Entergy and its subsidiaries.
e Savings Plan of Entergy Corporation and Subsidiaries VI
covers eligible non-bargaining employees transferred from Palisades
eective with the closing of the purchase of Palisades in April 2007.
e Savings Plan of Entergy Corporation and Subsidiaries VII covers
certain eligible bargaining unit employees of Palisades eective with
the closing of the purchase of Palisades in April 2007.
Entergy’s subsidiaries’ contributions to dened contribution plans
collectively were $36.6 million in 2007, $31.4 million in 2006, and
$33.8 million in 2005. e majority of the contributions were to the
System Savings Plan.
NOTE 12. STOCK-BASED COMPENSATION
Entergy grants stock options and long-term incentive and restricted
liability awards to key employees of the Entergy subsidiaries under
its Equity Ownership Plans which are shareholder-approved stock-
based compensation plans. e Equity Ownership Plan, as restated in
February 2003 (2003 Plan), had 806,621 authorized shares remaining
for long-term incentive and restricted liability awards as of December
31, 2007. At the May 2006 annual meeting of shareholders, Entergy’s
shareholders approved the 2007 Equity Ownership and Long-Term
Cash Incentive Plan (2007 Plan) eective January 1, 2007. e
maximum aggregate number of common shares that can be issued
from the 2007 Plan for stock-based awards is 7,000,000 with no more
than 2,000,000 available for non-option grants. e 2007 Plan, which
only applies to awards made on or aer January 1, 2007, will expire aer
10 years. As of December 31, 2007, there were 5,182,380 authorized
shares remaining for stock-based awards, including 2,000,000 for non-
option grants.
ST O C K OP T I O N S
Stock options are granted at exercise prices that equal the closing
market price of Entergy Corporation common stock on the date of
grant. Generally, stock options granted will become exercisable in
equal amounts on each of the rst three anniversaries of the date of
grant. Unless they are forfeited previously under the terms of the
grant, options expire ten years aer the date of the grant if they are
not exercised.
e following table includes nancial information for stock options
for each of the years presented:
Entergy determines the fair value of the stock option grants
made in 2007, 2006, and 2005 by considering factors such as lack
of marketability, stock retention requirements, and regulatory
restrictions on exercisability. e fair value valuations comply with
SFAS 123R, “Share-Based Payment,” which was issued in December
2004 and became eective in the rst quarter 2006. e stock option
weighted-average assumptions used in determining the fair values are
as follows:
2007 2006 2005
Stock price volatility 17.0% 18.7% 18.8%
Expected term in years 4.59 3.9 3
Risk-free interest rate 4.85% 4.4% 3.6%
Dividend yield 3.0% 3.2% 3.1%
Dividend payment $2.16 $2.16 $2.16
Stock price volatility is calculated based upon the weekly public stock
price volatility of Entergy Corporation common stock over the last four
to ve years. e expected term of the options is based upon historical
option exercises and the weighted average life of options when exercised
and the estimated weighted average life of all vested but unexercised
options. Options held by certain management level employees include
a restriction that requires 75% of the aer-tax net prot upon exercise
of the option to be held in Entergy Corporation common stock until
the earlier of ve years or termination of employment. e reduction
in fair value of the stock options is based upon an estimate of the call
option value of the reinvested gain discounted to present value over
the ve year reinvestment period.
2007 2006 2005
Compensation expense included in
Entergy’s net income $15.0 $11.0 $13.0
Tax benet recognized in Entergy’s
net income $ 6.0 $ 4.0 $ 5.0
Compensation cost capitalized as
part of xed assets and inventory $ 3.0 $ 2.0 $ 2.0