20. Stock-Based Compensation - 2003 Annual Report - Duke Energy
Duke Energy

20. Stock-Based Compensation

Duke Energy’s 1998 Long-term Incentive Plan, as amended (the 1998 Plan), reserved 60 million shares of common stock for awards to employees and outside directors. Under the 1998 Plan, the exercise price of each option granted cannot be less than the market price of Duke Energy’s common stock on the date of grant and the maximum option term is 10 years. The vesting periods range from immediate to five years.

Upon the acquisition of Westcoast, Duke Energy converted all stock options outstanding under the 1989 Westcoast Long-term Incentive Share Option Plan to Duke Energy Corporation stock options. Certain of these options also provide for share appreciation rights under which the holder of a stock option may, in lieu of exercising the option, exercise the share appreciation right. The exercise price of these options equals the market price on the date of grant and the maximum option term is 10 years. The vesting periods range from immediate to four years.

Stock Option Activity

 

Options
(in thousands)

 

Weighted-Average
Exercise Price

Outstanding at December 31, 2000

      

22,506

      

    

$31

      

Granted

  

7,090

 

    

37

  

Exercised

  

(2,285)

 

    

25

  

Forfeited

  

(905)

 

    

33

  

Outstanding at December 31, 2001

  

26,406

 

    

33

  

Granted(a)

  

9,406

 

    

34

  

Exercised

  

(1,452)

 

    

23

  

Forfeited

  

(3,151)

 

    

37

  

Outstanding at December 31, 2002

  

31,209

 

    

34

  

Granted

  

8,248

 

    

15

  

Exercised

  

(339)

 

    

11

  

Forfeited

  

(6,702)

 

    

34

  

Outstanding at December 31, 2003

  

32,416

 

    

29

  

(a) Includes 2,746,044 converted Westcoast stock options

Stock Options at December 31, 2003

 

  

Outstanding

  

Exercisable

Range of
Exercise Prices

  

Number
(in thousands)

  

Weighted-Average
Remaining Life
(in years)

  

Weighted-Average
Exercise 
Price

  

Number
(in thousands)

  

Weighted-Average
Exercise 
Price

$  5 to $10

  

193

 

  

1.0

 

  

$10

  

  

193

 

  

$10

  

$11 to $14

  

5,772

 

  

8.9

 

  

14

  

  

190

 

  

13

  

$15 to $20

  

2,298

 

  

8.9

 

  

17

  

  

915

 

  

18

  

$21 to $24

  

508

 

  

5.2

 

  

22

  

  

446

 

  

22

  

$25 to $28

  

6,365

 

  

5.6

 

  

26

  

  

6,096

 

  

26

  

$29 to $33

  

4,212

 

  

4.9

 

  

30

  

  

4,105

 

  

30

  

$34 to $37

  

1,185

 

  

7.8

 

  

35

  

  

444

 

  

35

  

$38 to $39

  

7,100

 

  

8.0

 

  

38

  

  

4,545

 

  

38

  

        >$39

  

4,783

 

  

7.0

 

  

43

  

  

3,504

 

  

43

  

Total

  

32,416

 

  

7.1

 

  

 

  

  

20,438

 

  

32

  

As of December 31, 2002, Duke Energy had 19.1 million exercisable options with a $32 weighted-average exercise price. As of December 31, 2001, Duke Energy had 7.9 million exercisable options with a $28 weighted-average exercise price.

The weighted-average fair value per option granted was $4 for 2003, and $10 for 2002 and 2001. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model.

Weighted-Average Assumptions for Option-Pricing

 

 

  

2003

  

2002

  

2001
 

Stock dividend yield

  

3.5%

  

3.4%

  

3.4%
 

Expected stock price volatility

  

37.5%

  

29.9%

  

29.5%
 

Risk-free interest rates

  

3.6%

  

5.0%

  

5.0%
 

Expected option lives

  

7 years

  

7 years

  

7 years

The 1998 Plan allows for a maximum of 12 million shares of common stock to be issued in the form of restricted stock awards, performance awards and phantom stock awards. Stock-based performance awards granted under the 1998 Plan vest over periods from three to seven years. Vesting can occur in year three, at the earliest if performance is met. Duke Energy awarded 75,000 shares (fair value of approximately $2 million at grant dates) in 2003, 16,000 shares (fair value of approximately $1 million at grant dates) in 2002 and 24,000 shares (fair value of approximately $1 million at grant dates) in 2001. Compensation expense for the performance awards is charged to earnings over the vesting period, and totaled $3 million in 2003, $4 million in 2002 and $6 million in 2001.

Phantom stock awards granted under the 1998 Plan vest over periods ranging from one to four years. Duke Energy awarded 285,000 shares (fair value of approximately $5 million at grant dates) in 2003, 54,430 shares (fair value of approximately $2 million at grant dates) in 2002 and 457,700 shares (fair value of approximately $17 million at grant dates) in 2001. Compensation expense for the phantom awards is charged to earnings over the vesting period, and totaled $6 million in 2003, $10 million in 2002 and $4 million in 2001.

Restricted stock awards granted under the 1998 Plan vest over periods ranging from one to five years. Duke Energy awarded 19,897 shares (fair value of less than $1 million at grant dates) in 2003, 14,260 shares (fair value of less than $1 million at grant dates) in 2002 and 74,005 shares (fair value of approximately $3 million at grant dates) in 2001. Compensation expense for restricted awards is charged to earnings over the vesting period, and totaled $1 million in 2003, $2 million in 2002 and $3 million in 2001.

Duke Energy’s 1996 Stock Incentive Plan (the 1996 Plan) allowed four million shares of common stock for awards to employees. Restricted stock grants under the 1996 Plan vest over periods ranging from one to five years. Duke Energy awarded no restricted shares in 2003 and 2002 and awarded 50,000 restricted shares (fair value of approximately $2 million at grant date) in 2001. Compensation expense for restricted awards is charged to earnings over the vesting period and totaled less than $1 million in 2003, and $1 million in 2002 and 2001.