Progress Energy 2008 Annual Report Download - page 87

85
Progress Energy Annual Report 2008
The options outstanding and exercisable at December 31,
2008, had a weighted-average remaining contractual life
of 4.0 years. Aggregate intrinsic value as of December 31,
2008, was not significant. Total intrinsic value of options
exercised during the years ended December 31, 2007 and
2006, respectively, was $17 million and $10 million. The
total intrinsic value of options exercised during the year
ended December 31, 2008, was not significant.
Compensation cost, for expense purposes subsequent
to the adoption of SFAS No. 123R, is measured at the
grant date based on the fair value of the award and is
recognized over the vesting period. The fair value for
these options was estimated at the grant date using a
Black-Scholes option pricing model. Dividend yield and
the volatility factor were calculated using three years
of historical trend information. The expected term was
based on the contractual life of the options.
At December 31, 2006, all options were fully vested;
therefore, no compensation expense was recognized
in 2008 or 2007. Stock option expense totaling $2 million
was recognized in income during the year ended
December 31, 2006, with a recognized tax benefit of
$1 million. No compensation cost related to stock options
was capitalized during the year.
Cash received from the exercise of stock options totaled
$1 million, $105 million and $115 million, respectively,
during the years ended December 31, 2008, 2007 and
2006. The actual tax benefit for tax deductions from stock
option exercises for the years ended December 31, 2007
and 2006, was $6 million and $4 million, respectively. The
actual tax benefit deduction for stock option exercises for
the year ended December 31, 2008, was not significant.
OTHER STOCK-BASED COMPENSATION PLANS
We have additional compensation plans for our officers
and key employees that are stock-based in whole or in part.
Our long-term compensation program currently includes
two types of equity-based incentives: performance
shares under the Performance Share Sub-Plan (PSSP)
and restricted stock programs. The compensation
program was established pursuant to our 1997 EIP and
was continued under our 2002 and 2007 EIPs, as amended
and restated from time to time.
We granted cash-settled PSSP awards prior to 2005.
Since 2005, we have been granting stock-settled PSSP
awards. Under the terms of the PSSP, our officers and key
employees are granted a target number of performance
shares on an annual basis that vest over a three-year
consecutive period. Each performance share has a
value that is equal to, and changes with, the value of a
share of Progress Energy common stock, and dividend
equivalents are accrued on, and reinvested in, additional
performance shares. Prior to 2007, shares issued under
the PSSP (both cash-settled and stock-settled) had two
equally weighted performance measures, both based
on our results as compared to a peer group of utilities.
In 2007, the PSSP was redesigned, and shares issued
under the revised plan use one performance measure.
The outcome of the performance measures can result
in an increase or decrease from the target number of
performance shares granted. For cash-settled awards,
compensation expense is recognized over the vesting
period based on the estimated fair value of the award,
which is periodically updated to reflect factors such as
changes in stock price and the status of performance
measures. The stock-settled PSSP is similar to the
cash-settled PSSP, except that we distribute common
stock shares to participants equivalent to the number of
performance shares that ultimately vest. We issue new
shares of common stock to satisfy the requirements
of the PSSP program. Also, the fair value of the stock-
settled award is generally established at the grant date
based on the fair value of common stock on that date,
with subsequent adjustments made to reflect the status
of the performance measure. Compensation expense
for all awards is reduced by estimated forfeitures. PSSP
cash-settled liabilities totaling $2 million, $3 million and
$4 million were paid in the years ended December 31,
2008, 2007 and 2006, respectively. A summary of the status
of the target performance shares under the stock-settled
PSSP plan at December 31, 2008, and changes during the
year then ended is presented below:
Number of Stock-Settled
Performance Shares(a) Weighted-Average Grant Date Fair Value
Beginning balance 1,629,995 $44.97
Granted 271,964 42.41
Vested (441,435) 44.23
Paid(b) (228,793) 50.70
Forfeited (113,127) 44.76
Ending balance 1,118,604 46.46
(a) Amounts reflect target shares to be issued. The final number of shares issued
will be dependent upon the outcome of the performance measures discussed
above.
(b) Shares paid include only target shares as originally granted. Additional shares
of 131,881 were issued and paid due to exceeding established performance
thresholds and due to dividends earned.
For the years ended December 31, 2007 and 2006, the
weighted-average grant date fair value of stock-settled
performance shares granted was $50.70 and $44.27,
respectively.