Entergy 2010 Annual Report Download - page 101

ENTERGY CORPORATION AND SUBSIDIARIES 2010
The actuarially estimated effect of future Medicare subsidies
reduced the December 31, 2010 and 2009 Accumulated
Postretirement Benefit Obligation by $267 million and $215
million, respectively, and reduced the 2010, 2009, and 2008 other
postretirement benefit cost by $26.6 million, $24.0 million and
$24.7 million, respectively. In 2010, Entergy received $5.4 million
in Medicare subsidies for prescription drug claims.
Non-Qualified Pension Plans
Entergy also sponsors non–qualified, non–contributory defined
benefit pension plans that provide benefits to certain key
employees. Entergy recognized net periodic pension cost related
to these plans of $27.2 million in 2010, $23.6 million in 2009,
and $17.2 million in 2008. In 2010 and 2009, Entergy recognized
$9.3 million and $6.7 million, respectively in settlement charges
related to the payment of lump sum benefits out of the plan that
is included in the non–qualified pension plan cost above. The
projected benefit obligation was $148.3 million and $147.9 million
as of December 31, 2010 and 2009, respectively. The accumulated
benefit obligation was $131.6 million and $134.1 million as of
December 31, 2010 and 2009, respectively.
Entergy’s non-qualified, non-current pension liability at
December 31, 2010 and 2009 was $138.7 million and $124.1
million, respectively; and its current liability was $9.6 million
and $23.8 million, respectively. The unamortized transition asset,
prior service cost and net loss are recognized in regulatory
assets ($53.5 million at December 31, 2010 and $51.6 million at
December 31, 2009) and accumulated other comprehensive
income before taxes ($24.3 million at December 31, 2010 and $23
million at December 31, 2009.)
Defined Contribution Plans
Entergy sponsors the Savings Plan of Entergy Corporation and
Subsidiaries (System Savings Plan). The System Savings Plan
is a defined contribution plan covering eligible employees of
Entergy and its subsidiaries. The 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. The 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. 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 $41.8 million in 2010, $41.9 million in 2009,
and $38.4 million in 2008. 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 715,584 authorized shares remaining for long-term incentive
and restricted liability awards as of December 31, 2010. 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,
2010, there were 1,543,228 authorized shares remaining for stock-
based awards, all of which are available for non-option grants.
Stock Options
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):
2010 2009 2008
Compensation expense included in
Entergy’s consolidated net income $15.0 $17.0 $17.0
Tax benefit recognized in Entergy’s
consolidated net income $ 6.0 $ 6.0 $ 7.0
Compensation cost capitalized as
part of fixed assets and inventory $ 3.0 $ 3.0 $ 3.0
Entergy determines the fair value of the stock option grants
by considering factors such as lack of marketability, stock reten-
tion requirements, and regulatory restrictions on exercisability in
accordance with accounting standards. The stock option weight-
ed-average assumptions used in determining the fair values are
as follows:
2010 2009 2008
Stock price volatility 25.73% 24.39% 18.9%
Expected term in years 5.46 5.33 4.64
Risk-free interest rate 2.57% 2.22% 2.77%
Dividend yield 3.74% 3.50% 2.96%
Dividend payment per share $3.24 $3.00 $3.00
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
multiple of his or her salary. Until an executive officer achieves
this ownership position 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 due to this restriction is based upon an
estimate of the call option value of the reinvested gain discounted
to present value over the applicable reinvestment period.
Notes to Consolidated Financial Statements continued
99