OG&E 2015 Annual Report Download - page 27

OGE Energy Corp. 51
recording฀compensation฀expense฀separately฀for฀each฀tranche฀whereby฀
a฀substantial฀portion฀of฀the฀expense฀is฀recognized฀in฀the฀earlier฀years฀
in฀the฀requisite฀service฀period.฀Dividends฀are฀accrued฀and฀paid฀during฀
the฀vesting฀period฀on฀all฀restricted฀stock฀awards฀prior฀to฀July฀2014,฀and฀
therefore฀included฀in฀the฀fair฀value฀calculation.฀For฀all฀awards฀after฀
July฀2014,฀dividends฀will฀only฀be฀paid฀on฀any฀restricted฀stock฀awards฀
that฀vest,฀accordingly฀dividends฀are฀no฀longer฀included฀in฀the฀fair฀value฀
calculations.฀The฀expected฀life฀of฀the฀restricted฀stock฀is฀based฀on฀the฀
non-vested฀period฀since฀inception฀of฀the฀three-year฀award฀cycle.฀There฀
Unrecognized Compensation Cost
A฀summary฀of฀the฀Company’s฀unrecognized฀compensation฀cost฀for฀its฀
non-vested฀performance฀units฀and฀restricted฀stock฀and฀the฀weighted-
average฀periods฀over฀which฀the฀compensation฀cost฀is฀expected฀to฀be฀
recognized฀are฀shown฀in฀the฀following฀table.฀
฀ Unrecognized฀ Weighted฀Average
฀ Compensation฀Cost฀ to฀be฀Recognized
December 31, 2015฀(in฀millions)฀(in฀years)
Performance฀units
Total฀shareholder฀return฀ $6.7 1.68
Earnings฀per฀share฀ 2.4 1.69
Total฀performance฀units฀ 9.1
Restricted฀stock฀ 0.1 1.60
Total฀ $9.2
฀ Performance฀Units
฀ Total฀Shareholder฀Return฀ Earnings฀Per฀Share฀ Restricted฀Stock
฀ ฀ Aggregate฀ ฀ Aggregate฀ ฀ Aggregate
฀ Number฀ Intrinsic฀ Number฀ Intrinsic฀ Number฀ Intrinsic
(Dollars฀in฀millions)฀ of฀Units฀ Value฀ of฀Units฀ Value฀ of฀Shares฀ Value
Units/Shares฀Outstanding฀at฀12/31/14฀ 892,991฀ ฀ 297,687฀ ฀ 12,501
Granted฀ 264,454(A) 88,156(A) 958
Converted฀ (343,395)(B) $0.2 (114,366)(B) $4.9 N/A
Vested฀ N/A N/A (4,772) $0.1
Forfeited฀ (89,992) (30,007) (1,064)
Units/Shares฀Outstanding฀at฀12/31/15฀ 724,058 $ — 241,470 $ — 7,623 $0.3
Units/Shares฀Fully฀Vested฀at฀12/31/15฀ 327,115 $ — 109,154 $ —
(A)฀ ฀
For฀performance฀units,฀this฀represents฀the฀target฀number฀of฀performance฀units฀granted.฀Actual฀number฀of฀performance฀units฀earned,฀if฀any,฀is฀dependent฀upon฀performance฀and฀may฀
range฀from฀0฀percent฀to฀200฀percent฀of฀the฀target.
(B)฀ ฀These฀amounts฀represent฀performance฀units฀that฀vested฀at฀December฀31,฀2014฀which฀were฀settled฀in฀February฀2015.฀
A฀summary฀of฀the฀activity฀for฀the฀Company’s฀non-vested฀performance฀฀
units฀and฀restricted฀stock฀at฀December฀31,฀2015฀and฀changes฀in฀2015฀฀
are฀shown฀in฀the฀following฀table.฀
฀ Performance฀Units
฀ Total฀Shareholder฀Return฀ Earnings฀Per฀Share฀ Restricted฀Stock
฀ ฀ Weighted-฀ ฀ Weighted-฀ ฀ Weighted-
฀ ฀ Average฀ ฀ Average฀ ฀ Average
฀ Number฀ Grant฀Date฀ Number฀ Grant฀Date฀ Number฀ Grant฀Date
฀ of฀Units฀ Fair฀Value฀ of฀Units฀ Fair฀Value฀ of฀Shares฀ Fair฀Value
Units/Shares฀Non-Vested฀at฀12/31/14฀ 556,844฀ $29.38฀ 185,737฀ $29.90฀ 12,501฀ $32.65
Granted฀ 264,454(A) $31.02 88,156(A) $33,99 958 $26.11
Converted฀ (7,248)(B) $28.95 (2,416)(B) $28.95 N/A N/A
Vested฀ (327,115) $25.89 (109,154) $26.73 (4,772) $32.33
Forfeited฀ (89,992) $31.48 (30,007) $32.95 (1,064) $25.87
Units/Shares฀Non-Vested฀at฀12/31/15฀ 396,943 $32.83 132,316 $34.30 7,623 $29.68
Units/Shares฀Expected฀to฀Vest฀ 390,820(C) 130,274(C) 7,623
(A)฀ ฀
For฀performance฀units,฀this฀represents฀the฀target฀number฀of฀performance฀units฀granted.฀Actual฀number฀of฀performance฀units฀earned,฀if฀any,฀is฀dependent฀upon฀performance฀and฀may฀
range฀from฀0฀percent฀to฀200฀percent฀of฀the฀target.
(B)฀ ฀Units฀paid฀out฀under฀terms฀of฀plan฀to฀member฀on฀long-term฀disability.
(C)฀ ฀There฀is฀no฀intrinsic฀value฀of฀the฀performance฀units฀based฀on฀total฀shareholder฀return฀and฀earnings฀per฀share.฀
Fair Value of Vested Performance Units and Restricted Stock
A฀summary฀of฀the฀Company’s฀fair฀value฀for฀its฀vested฀performance฀
units฀and฀restricted฀stock฀is฀shown฀in฀the฀following฀table.
Year฀ended฀December฀31฀(In฀millions)฀2015฀ 2014฀ 2013
Performance฀units฀
Total฀shareholder฀return฀ $8.5฀ $9.5฀ $8.2
Earnings฀per฀share฀ —฀ 3.8฀ 4.9
Restricted฀stock฀ 0.2฀ 0.2฀ 0.7
are฀no฀post-vesting฀restrictions฀related฀to฀the฀Company’s฀restricted฀
stock.฀The฀number฀of฀shares฀of฀restricted฀stock฀granted฀and฀the฀grant฀
date฀fair฀value฀are฀shown฀in฀the฀following฀table.฀
฀2015฀ 2014฀ 2013
Shares฀of฀restricted฀stock฀granted฀ 958฀ 7,037฀ 5,940
Fair฀value฀of฀restricted฀stock฀granted฀ $26.11฀ $35.71฀ $29.71
A฀summary฀of฀the฀activity฀for฀the฀Company’s฀performance฀units฀and฀
restricted฀stock฀at฀December฀31,฀2015฀and฀changes฀in฀2015฀are฀shown฀
in฀the฀following฀table.
50 OGE Energy Corp.
Performance Units
Under฀the฀Stock฀Incentive฀Plan,฀the฀Company฀has฀issued฀performance฀
units฀which฀represent฀the฀value฀of฀one฀share฀of฀the฀Company’s฀
common฀stock.฀The฀performance฀units฀provide฀for฀accelerated฀vesting฀
if฀there฀is฀a฀change฀in฀control฀(as฀defined฀in฀the฀Sto k฀Incentive฀Plan).฀
Each฀performance฀unit฀is฀subject฀to฀forfeiture฀if฀the฀recipient฀terminates฀
employment฀with฀the฀Company฀or฀a฀subsidiary฀prior฀to฀the฀end฀of฀the฀
three-year฀award฀cycle฀for฀any฀reason฀other฀than฀death,฀disability฀or฀
retirement.฀In฀the฀event฀of฀death,฀disability฀or฀retirement,฀a฀participant฀
will฀receive฀a฀prorated฀payment฀based฀on฀such฀participant’s฀number฀of฀
full฀months฀of฀service฀during฀the฀award฀cycle,฀further฀adjusted฀based฀
on฀the฀achievement฀of฀the฀performance฀goals฀during฀the฀award฀cycle.
The฀performance฀units฀granted฀based฀on฀total฀shareholder฀return฀are฀
contingently฀awarded฀and฀will฀be฀payable฀in฀shares฀of฀the฀Company’s฀
common฀stock฀subject฀to฀the฀condition฀that฀the฀number฀of฀performance฀
units,฀if฀any,฀earned฀by฀the฀employees฀upon฀the฀expiration฀of฀a฀
three-year฀award฀cycle฀(i.e.,฀three-year฀cliff฀vesting฀period)฀is฀
dependent฀on฀the฀Company’s฀total฀shareholder฀return฀ranking฀relative฀
to฀a฀peer฀group฀of฀companies.฀The฀performance฀units฀granted฀based฀
on฀earnings฀per฀share฀are฀contingently฀awarded฀and฀will฀be฀payable฀in฀
shares฀of฀the฀Company’s฀common฀stock฀based฀on฀the฀Company’s฀
earnings฀per฀share฀growth฀over฀a฀three-year฀award฀cycle฀(i.e.,฀
three-year฀cliff฀vesting฀period)฀compared฀to฀a฀target฀set฀at฀the฀time฀of฀
the฀grant฀by฀the฀Compensation฀Committee฀of฀the฀Company’s฀Board฀of฀
Directors.฀All฀of฀these฀performance฀units฀are฀classified฀as฀equity฀in฀the
Consolidated฀Balance฀Sheets.฀If฀there฀is฀no฀or฀only฀a฀partial฀payout฀for฀
the฀performance฀units฀at฀the฀end฀of฀the฀award฀cycle,฀the฀unearned฀
performance฀units฀are฀cancelled.฀Payout฀requires฀approval฀of฀the฀
Compensation฀Committee฀of฀the฀Company’s฀Board฀of฀Directors.฀
Payouts,฀if฀any,฀are฀all฀made฀in฀common฀stock฀and฀are฀considered฀
made฀when฀the฀payout฀is฀approved฀by฀the฀Compensation฀Committee.
As฀a฀result฀of฀the฀formation฀of฀Enable฀on฀May฀1,฀2013,฀performance฀
unit฀grants฀to฀OGE฀Holdings’฀employees฀that฀were฀previously฀based฀on฀
earnings฀before฀interest,฀taxes,฀depreciation฀and฀amortization฀were฀
converted฀to฀performance฀units฀based฀on฀total฀shareholder฀return฀or฀
earnings฀per฀share.฀Total฀2013฀performance฀unit฀grants฀converted฀were฀
91,390,฀comprised฀of฀45,596฀total฀shareholder฀return฀performance฀
units฀with฀a฀$25.89฀grant฀date฀fair฀value฀and฀45,794฀earnings฀per฀share฀
performance฀units฀with฀a฀$26.73฀grant฀date฀fair฀value.฀Total฀2012฀
performance฀unit฀grants฀converted฀were฀82,930,฀comprised฀of฀
41,554฀total฀shareholder฀return฀performance฀units฀with฀a฀$47.71฀grant฀
date฀fair฀value฀and฀41,376฀earnings฀per฀share฀performance฀units฀with฀฀
a฀$34.94฀grant฀date฀fair฀value.฀The฀amount฀of฀these฀performance฀฀
units฀were฀adjusted฀for฀the฀effects฀of฀the฀stock฀split.฀The฀impact฀of฀฀
the฀modification฀of฀the฀per ormance฀unit฀grants฀on฀stock-based฀
compensation฀expense฀for฀2013฀was฀not฀material.
Performance฀Units฀–฀Total฀Shareholder฀Return
The฀fair฀value฀of฀the฀performance฀units฀based฀on฀total฀shareholder฀
return฀was฀estimated฀on฀the฀grant฀date฀using฀a฀lattice-based฀valuation฀
model฀that฀factors฀in฀information,฀including฀the฀expected฀dividend฀yield,฀
expected฀price฀volatility,฀risk-free฀interest฀rate฀and฀the฀probable฀
outcome฀of฀the฀market฀condition,฀over฀the฀expected฀life฀of฀the฀
performance฀units.฀Compensation฀expense฀for฀the฀performance฀units฀฀
is฀a฀fi ed฀amount฀determined฀at฀the฀grant฀date฀fair฀value฀and฀is฀
recognized฀over฀the฀three-year฀award฀cycle฀regardless฀of฀whether฀
performance฀units฀are฀awarded฀at฀the฀end฀of฀the฀award฀cycle.฀
Dividends฀were฀not฀accrued฀or฀paid฀for฀awards฀prior฀to฀February฀2014,฀
and฀were฀therefore฀not฀included฀in฀the฀fair฀value฀calculation.฀Beginning฀
with฀the฀February฀2014฀performance฀unit฀awards,฀dividends฀are฀
accrued฀on฀a฀quarterly฀basis฀pending฀achievement฀of฀payout฀criteria,฀
and฀were฀therefore฀included฀in฀the฀fair฀value฀calculations.฀Expected฀
price฀volatility฀is฀based฀on฀the฀historical฀volatility฀of฀the฀Company’s฀
common฀stock฀for฀the฀past฀three฀years฀and฀was฀simulated฀using฀the฀
Geometric฀Brownian฀Motion฀process.฀The฀risk-free฀interest฀rate฀for฀the฀
performance฀unit฀grants฀is฀based฀on฀the฀three-year฀U.S.฀Treasury฀yield฀
curve฀in฀effect฀at฀the฀time฀of฀the฀grant.฀The฀expected฀life฀of฀the฀units฀is฀
based฀on฀the฀non-vested฀period฀since฀inception฀of฀the฀award฀cycle.฀
There฀are฀no฀post-vesting฀restrictions฀related฀to฀the฀Company’s฀
performance฀units฀based฀on฀total฀shareholder฀return.฀The฀number฀฀
of฀performance฀units฀granted฀based฀on฀total฀shareholder฀return฀and฀฀
the฀assumptions฀used฀to฀calculate฀the฀grant฀date฀fair฀value฀of฀the฀
performance฀units฀based฀on฀total฀shareholder฀return฀are฀shown฀in฀฀
the฀following฀table.
฀2015฀ 2014฀ 2013
Number฀of฀units฀granted฀ 264,454฀ 219,106฀ 316,162
Fair฀value฀of฀units฀granted฀ $31.02฀ $34.80฀ $25.89
Expected฀dividend฀yield฀ 2.6%฀ 2.5%฀ 2.8%
Expected฀price฀volatility฀ 16.9%฀ 20.0%฀ 20.0%
Risk-free฀interest฀rate฀ 0.91%฀ 0.67%฀ 0.37%
Expected฀life฀of฀units฀(in฀years)฀2.85฀ 2.86฀ 2.84
Performance฀Units฀–฀Earnings฀Per฀Share
The฀fair฀value฀of฀the฀performance฀units฀based฀on฀earnings฀per฀share฀is฀
based฀on฀grant฀date฀fair฀value฀which฀is฀equivalent฀to฀the฀price฀of฀one฀
share฀of฀the฀Company’s฀common฀stock฀on฀the฀date฀of฀grant.฀The฀fair฀
value฀of฀performance฀units฀based฀on฀earnings฀per฀share฀varies฀as฀the฀
number฀of฀performance฀units฀that฀will฀vest฀is฀based฀on฀the฀grant฀date฀
fair฀value฀of฀the฀units฀and฀the฀probable฀outcome฀of฀the฀performance฀
condition.฀The฀Company฀reassesses฀at฀each฀reporting฀date฀whether฀
achievement฀of฀the฀performance฀condition฀is฀probable฀and฀accrues฀
compensation฀expense฀if฀and฀when฀achievement฀of฀the฀performance฀
condition฀is฀probable.฀As฀a฀result,฀the฀compensation฀expense฀
recognized฀for฀these฀performance฀units฀can฀vary฀from฀period฀to฀period.฀
There฀are฀no฀post-vesting฀restrictions฀related฀to฀the฀Company’s฀
performance฀units฀based฀on฀earnings฀per฀share.฀The฀number฀of฀
performance฀units฀granted฀based฀on฀earnings฀per฀share฀and฀the฀grant฀
date฀fair฀value฀are฀shown฀in฀the฀following฀table.฀
฀2015฀ 2014฀ 2013
Number฀of฀units฀granted฀ 88,156฀ 73,037฀ 74,570
Fair฀value฀of฀units฀granted฀ $33.99฀ $34.81฀ $26.73
Restricted Stock
Under฀the฀Stock฀Incentive฀Plan฀and฀beginning฀in฀2008,฀the฀Company฀
issued฀restricted฀stock฀to฀certain฀existing฀non-officer฀empl yees฀as฀well฀
as฀other฀executives฀upon฀hire฀to฀attract฀and฀retain฀individuals฀to฀be฀
competitive฀in฀the฀marketplace.฀The฀restricted฀stock฀vests฀in฀one-third฀
annual฀increments.฀Prior฀to฀vesting,฀each฀share฀of฀restricted฀stock฀is฀
subject฀to฀forfeiture฀if฀the฀recipient฀ceases฀to฀render฀substantial฀
services฀to฀the฀Company฀or฀a฀subsidiary฀for฀any฀reason฀other฀than฀
death,฀disability฀or฀retirement.฀These฀shares฀may฀not฀be฀sold,฀
assigned,฀transferred฀or฀pledged฀and฀are฀subject฀to฀a฀risk฀of฀forfeiture.
The฀fair฀value฀of฀the฀restricted฀stock฀was฀based฀on฀the฀closing฀
market฀price฀of฀the฀Company’s฀common฀stock฀on฀the฀grant฀date.฀
Compensation฀expense฀for฀the฀restricted฀stock฀is฀a฀fi ed฀amount฀
determined฀at฀the฀grant฀date฀fair฀value฀and฀is฀recognized฀as฀services฀
are฀rendered฀by฀employees฀over฀a฀three-year฀vesting฀period.฀Also,฀the฀
Company฀treats฀its฀restricted฀stock฀as฀multiple฀separate฀awards฀by฀