Progress Energy 2008 Annual Report Download - page 86

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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B. Stock-Based Compensation
EMPLOYEE STOCK OWNERSHIP PLAN
We sponsor the 401(k) for which substantially all full-
time nonbargaining unit employees and certain part-
time nonbargaining unit employees within participating
subsidiaries are eligible. At December 31, 2008 and 2007,
participating subsidiaries were PEC, PEF, PVI, Progress
Fuels (corporate employees) and PESC. The 401(k), which
has matching and incentive goal features, encourages
systematic savings by employees and provides a method
of acquiring Progress Energy common stock and other
diverse investments. The 401(k), as amended in 1989, is
an Employee Stock Ownership Plan (ESOP) that can enter
into acquisition loans to acquire Progress Energy common
stock to satisfy 401(k) common share needs. Qualification
as an ESOP did not change the level of benefits received
by employees under the 401(k). Common stock acquired
with the proceeds of an ESOP loan is held by the 401(k)
Trustee in a suspense account. The common stock is
released from the suspense account and made available
for allocation to participants as the ESOP loan is repaid.
Such allocations are used to partially meet common stock
needs related to matching and incentive contributions
and/or reinvested dividends. All or a portion of the
dividends paid on ESOP suspense shares and on ESOP
shares allocated to participants may be used to repay
ESOP acquisition loans. Dividends that are used to repay
such loans, paid directly to participants or reinvested by
participants, are deductible for income tax purposes.
There were 1.1 million and 1.7 million ESOP suspense
shares at December 31, 2008 and 2007, respectively, with
a fair value of $45 million and $82 million, respectively.
ESOP shares allocated to plan participants totaled
12.6 million and 10.6 million at December 31, 2008 and
2007, respectively. Our matching and incentive goal
compensation cost under the 401(k) is determined based
on matching percentages and incentive goal attainment as
defined in the plan. Such compensation cost is allocated
to participants’ accounts in the form of Progress Energy
common stock, with the number of shares determined
by dividing compensation cost by the common stock
market value at the time of allocation. We currently meet
common stock share needs with open market purchases,
with shares released from the ESOP suspense account
and with newly issued shares. Costs for incentive goal
compensation are accrued during the fiscal year and
typically paid in shares in the following year, while costs
for the matching component are typically met with shares
in the same year incurred. Matching and incentive costs,
which were met and will be met with shares released
from the suspense account, totaled approximately
$8 million, $23 million and $14 million for the years ended
December 31, 2008, 2007 and 2006, respectively. Total
matching and incentive costs were approximately
$34 million, $30 million and $23 million for the years ended
December 31, 2008, 2007 and 2006, respectively. We have a
long-term note receivable from the 401(k) Trustee related
to the purchase of common stock from us in 1989. The
balance of the note receivable from the 401(k) Trustee is
included in the determination of unearned ESOP common
stock, which reduces common stock equity. ESOP
shares that have not been committed to be released to
participants’ accounts are not considered outstanding
for the determination of earnings per common share.
Interest income on the note receivable and dividends on
unallocated ESOP shares are not recognized for financial
statement purposes.
Effective January 1, 2008, the 401(k) Plan was revised. As
revised, the employer match percentage was increased
and the employee stock incentive plan based on goal
attainment was discontinued.
STOCK OPTIONS
Pursuant to our 1997 Equity Incentive Plan (EIP) and 2002
EIP, amended and restated as of July 10, 2002, we may grant
options to purchase shares of Progress Energy common
stock to directors, officers and eligible employees for up
to 5 million and 15 million shares, respectively. Generally,
options granted to employees vest one-third per year with
100 percent vesting at the end of year three, while options
granted to directors vest 100 percent at the end of one
year. The options expire 10 years from the date of grant.
All option grants have an exercise price equal to the fair
market value of our common stock on the grant date. We
curtailed our stock option program in 2004 and replaced
that compensation program with other programs. No
stock options have been granted since 2004. We issue
new shares of common stock to satisfy the exercise of
previously issued stock options.
A summary of the status of our stock options at
December 31, 2008, and changes during the year then
ended, is presented below:
(option quantities in millions) Number of
Options Weighted-Average Exercise Price
Options outstanding, January 1 1.7 $43.99
Canceled –44.38
Exercised (0.1) 43.83
Options outstanding, December 31 1.6 43.99
Options exercisable, December 31 1.6 43.99