Entergy 2008 Annual Report Download - page 97

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ENTERGY CORPORATION AND SUBSIDIARIES 2008
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Notes to Consolidated Financial Statements continued
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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. The plans are defined contribution
plans that cover eligible employees, as defined by each plan, of
Entergy and its subsidiaries.
Entergy’s subsidiaries’ contributions to defined contribution
plans collectively were $38.4 million in 2008, $36.6 million in 2007,
and $31.4 million in 2006. The 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. The Equity Ownership Plan, as restated
in February 2003 (2003 Plan), had 743,600 authorized shares
remaining for long-term incentive and restricted liability awards
as of December 31, 2008. Effective January 1, 2007, Entergy’s
shareholders approved the 2007 Equity Ownership and Long-
Term Cash Incentive Plan (2007 Plan). The 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. The 2007 Plan, which only applies
to awards made on or after January 1, 2007, will expire after 10
years. As of December 31, 2008, there were 3,609,585 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 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.
The following table includes financial information for stock
options for each of the years presented (in millions):
2008 2007 2006
Compensation expense included in
Entergy’s net income $17.0 $15.0 $11.0
Tax benefit recognized in Entergy’s
net income $ 7.0 $ 6.0 $ 4.0
Compensation cost capitalized as
part of fixed assets and inventory $ 3.0 $ 3.0 $ 2.0
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. The fair value
valuations comply with SFAS 123R, “Share-Based Payment,”
which was issued in December 2004 and became effective
in the first quarter 2006. The stock option weighted-average
assumptions used in determining the fair values are as follows:
2008 2007 2006
Stock price volatility 18.9% 17.0% 18.7%
Expected term in years 4.64 4.59 3.9
Risk-free interest rate 2.77% 4.85% 4.4%
Dividend yield 2.96% 3.0% 3.2%
Dividend payment per share $3.00 $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 five years. The 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. In 2008, Entergy
implemented stock ownership guidelines for its senior executive
officers. These guidelines require an executive officer to own
shares of Entergy common stock equal to a specified multiplier of
his or her salary. Until an executive officer achieves this multiple
ownership portion the executive officer is required to retain 75%
of the after-tax net profit upon exercise of the option to be held in
Entergy Corporation common stock. The 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
applicable reinvestment period.