STOCK-BASED COMPENSATION

Duke Energy’s 2010 Long-Term Incentive Plan (the 2010 Plan) reserved 25 million shares of common stock for awards to employees and outside directors. Duke Energy has historically issued new shares upon exercising or vesting of share-based awards. However, Duke Energy may use a combination of new share issuances and open market repurchases for share-based awards that are exercised or become vested in the future. Duke Energy has not determined with certainty the amount of such new share issuances or open market repurchases.

The 2010 Plan allows for a maximum of 6.25 million shares of common stock to be issued under various stock-based awards other than options and stock appreciation rights.

In connection with the acquisition of Progress Energy in July 2012, Duke Energy assumed Progress Energy’s 2007 Equity Incentive Plan (EIP). Stock-based awards granted under the Progress Energy EIP and held by Progress Energy employees were generally converted into outstanding Duke Energy stock-based compensation awards. The estimated fair value of these awards allocated to the purchase price was $62 million. Refer to Note 2 for further information regarding the merger transaction.

The following table summarizes the total expense recognized by each of the Duke Energy Registrants, net of tax, for stock-based compensation.



	Years Ended December 31,
(in millions)	2014		2013		2012
Duke Energy	$	38	$	52	$	48
Duke Energy Carolinas	12		13		12
Progress Energy	14		23		25
Duke Energy Progress	9		14		16
Duke Energy Florida	5		9		9
Duke Energy Ohio	5		4		4
Duke Energy Indiana	3		4		4

Pretax stock-based compensation costs, the tax benefit associated with stock-based compensation expense, and stock-based compensation costs capitalized are included in the following table.



	Years Ended December 31,
(in millions)	2014		2013		2012
Restricted stock unit awards	$	39	$	49	$	43
Performance awards	22		34		33
Stock options	—		2		2
Pretax stock-based compensation cost	$	61	$	85	$	78
Tax benefit associated with stock-based compensation expense	$	23	$	33	$	30
Stock-based compensation costs capitalized	4		3		2

STOCK OPTIONS

The following table summarizes information about stock options outstanding.



	Options (in thousands)		Weighted-Average Exercise Price (per share)		Weighted-Average Remaining Life	Aggregate Intrinsic Value (in millions)
Outstanding at December 31, 2013	793		$	61
Exercised	(420	)	59
Outstanding at December 31, 2014	373		64		6 years, 10 months	$	7
Exercisable at December 31, 2014	53		46		1 year	2
Options expected to vest	320		67		7 years, 10 months	5

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 three years. Options granted in 2013 and 2012 were expensed immediately; therefore, there is no future compensation cost associated with these options.

The following table summarizes additional information related to stock options exercised and granted.



	Years Ended December 31,
	2014		2013		2012
Intrinsic value of options exercised (in millions)	$	6	$	26	$	17
Tax benefit related to options exercised (in millions)	2		10		7
Cash received from options exercised (in millions)	25		9		21
Stock options granted (in thousands)	—		310		340

RESTRICTED STOCK UNIT AWARDS

Restricted stock unit awards issued and outstanding generally vest over periods from immediate to 3 years. Fair value amounts are based on the market price of Duke Energy's common stock at the grant date. The following table includes information related to restricted stock unit awards.



	Years Ended December 31,
	2014		2013		2012
Shares awarded (in thousands)	557		612		443
Fair value (in millions)	$	40	$	42	$	28

The following table summarizes information about restricted stock unit awards outstanding.



	Shares (in thousands)		Weighted-Average Grant Date Fair Value (Per Share)
Outstanding at December 31, 2013	1,400		$	66
Granted	557		71
Vested	(832	)	62
Forfeited	(45	)	68
Outstanding at December 31, 2014	1,080		69
Restricted stock unit awards expected to vest	1,057		69

The total grant date fair value of shares vested during the years ended December 31, 2014, 2013 and 2012 was $52 million, $50 million and $34 million, respectively. At December 31, 2014, Duke Energy had $18 million of unrecognized compensation cost, which is expected to be recognized over a weighted-average period of one year, ten months.

PERFORMANCE AWARDS

Stock-based awards issued and outstanding generally vest over three years if performance targets are met.

Certain performance awards granted in 2014, 2013 and 2012 contain market conditions based on the total shareholder return (TSR) of Duke Energy stock relative to a predefined peer group (relative TSR). These awards are valued using a path-dependent model that incorporates expected relative TSR into the fair value determination of Duke Energy’s performance-based share awards. The model uses three-year historical volatilities and correlations for all companies in the predefined peer group, including Duke Energy, to simulate Duke Energy’s relative TSR as of the end of the performance period. For each simulation, Duke Energy’s relative TSR associated with the simulated stock price at the end of the performance period plus expected dividends within the period results in a value per share for the award portfolio. The average of these simulations is the expected portfolio value per share. Actual life to date results of Duke Energy’s relative TSR for each grant is incorporated within the model.

Other performance awards not containing market conditions were awarded in 2012. The performance goal for these awards is Duke Energy’s return on equity over a three-year period. Awards are measured at grant date price.

The following table includes information related to performance awards.



	Years Ended December 31,
	2014		2013		2012
Shares awarded (in thousands)	542		633		352
Fair value (in millions)	$	19	$	28	$	19

The following table summarizes information about stock-based performance awards outstanding at the maximum level.



	Shares (in thousands)		Weighted-Average Grant Date Fair Value (per share)
Outstanding at December 31, 2013	1,822		$	46
Granted	542		34
Vested	(524	)	52
Forfeited	(213	)	37
Outstanding at December 31, 2014	1,627		42
Stock-based performance awards expected to vest	1,418		42

The total grant date fair value of shares vested during the years ended December 31, 2014, 2013 and 2012 was $27 million, $42 million and $56 million, respectively. At December 31, 2014, Duke Energy had $21 million of unrecognized compensation cost, which is expected to be recognized over a weighted-average period of one year, nine months.

The grant date fair value of performance awards granted in 2014 was determined based on a risk-fee interest rate of 0.7 percent, which reflects the yield on three-year Treasury bonds as of the grant date, and an expected volatility of 13.5 percent based on Duke Energy's historical volatility over three years using daily stock prices.