Common and Preferred Stock

Common Stock

Stock-Based Compensation

At December 31, 2011, and 2010, Cleco had two stock-based plans: the ESPP and the LTICP. Substantially all employees, excluding officers and general managers, may choose to participate in the ESPP and purchase a limited amount of common stock at a discount through a stock option agreement. Options or restricted shares of stock, known as non-vested stock as defined by the authoritative guidance on stock-based compensation, common stock equivalents, and stock appreciation rights may be granted to certain officers, key employees, or directors of Cleco pursuant to the LTICP.

On January 28, 2011, Cleco granted 145,002 shares of non-vested stock to certain officers, key employees, and directors of Cleco pursuant to the LTICP. On July 5, 2011, Cleco granted an additional 40,000 shares of non-vested stock to certain officers of Cleco pursuant to the LTICP.

The fair market value of non-vested stock was recorded as compensation expense during the service periods, which are generally three years, after which the restrictions lapse, and assuming obtainment of vesting requirements was probable. All stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as an expense in the income statement over the grant’s requisite service period. Awards that vest pro rata during the requisite service period that contain only a service condition could be viewed not as one award, but instead as multiple awards with separate vesting schedules and are defined as having a graded vesting schedule. Cleco has elected to view grants with graded vesting schedules as one award and recognize the related compensation expense on a straight-line basis over the requisite service period. The ESPP’s discount rate is 5% and the plan does not contain optionality features beyond those listed by the authoritative guidance on stock-based compensation. Cleco is not required to recognize a fair-value expense related to the ESPP.

Cleco recorded compensation expense for all non-vested options and non-vested stock. This cost was based on the grant-date fair value. The cost for all stock-based awards represents the grant-date fair value. Cleco and Cleco Power reported pre-tax compensation expense for their share-based compensation plans as shown in the following table:



	CLECO						CLECO POWER
			FOR THE YEAR ENDED DECEMBER 31,						FOR THE YEAR ENDED DECEMBER 31,
(THOUSANDS)	2011		2010		2009		2011		2010		2009
Equity classification
Non-vested stock	$	3,391	$	2,276	$	2,084	678		$	575	$	549
Stock options ⁽¹⁾	103		51		51		—		—		—
Total equity classification	$	3,494	$	2,327	$	2,135	$	678	$	575	$	549
Liability classification
Common stock equivalent units	$	3,509	$	2,812	$	3,545	$	1,118	$	1,271	$	1,306
Total pre-tax compensation expense	$	7,003	$	5,139	$	5,680	$	1,796	$	1,846	$	1,855
Tax benefit (excluding income tax gross-up)	$	2,695	$	1,977	$	2,186	$	691	$	710	$	714

⁽¹⁾ For the years ended December 31, 2011, 2010, and 2009 compensation expense charged against income for non-forfeitable dividends paid on non-vested stock not expected to vest and stock options was $0.1 million.

As required by the authoritative guidance on stock-based compensation, the amount of stock-based compensation capitalized in property, plant, and equipment for the years ended December 31, 2011, and 2010 was $2.3 million and $1.8 million, respectively.

Cash received from options exercised under all stock-based compensation plans for the years ended December 31, 2011, and 2010 was $0.9 million and $3.2 million, respectively. The associated tax benefit for options exercised for each of the years ended December 31, 2011, and 2010 was $0.2 million and $0.4 million, respectively. No cash was paid to settle equity instruments granted under the stock-based compensation plans for the years ended December 31, 2011, or 2010.

Stock-Based Plan Descriptions and Share Information

Stock Options

LTICP stock options may be granted to certain officers, key employees, or directors of Cleco. The directors’ stock options have an exercise price calculated by averaging the high and low stock price on the grant date rounded to the nearest one-eighth, are immediately exercisable, and expire after 10 years. The officers’ and employees’ stock options have an exercise price calculated by averaging the high and low stock price on the grant date rounded to the nearest one-eighth, vest one-third each year, beginning on the third anniversary of the grant date, and expire after 10 years. The estimated fair value was calculated using the Black-Scholes option pricing model and was included in the pro forma disclosures. There were no stock options granted in 2011, 2010, or 2009.

A summary of LTICP stock option activity during the year ended December 31, 2011, is presented in the following table.



	SHARES		WEIGHTED- AVERAGE EXERCISE PRICE		WEIGHTED- AVERAGE REMAINING CONTRACTUAL TERM (YEARS)	AGGREGATE INTRINSIC VALUE (THOUSANDS)
Outstanding at January 1, 2011	134,070		$	21.32	11.04	$	1,266
Exercised	(39,700	)	$	21.77	—	$	—
Forfeited	(300	)	$	22.25	—	$	—
Outstanding at December 31, 2011	94,070		$	21.12	14.92	$	1,597
Exercisable at December 31, 2011	90,570		$	21.03	15.34	$	1,546

The total intrinsic value of options exercised during the years ended December 31, 2011, 2010, and 2009 was $0.5 million, $1.1 million, and $0.4 million, respectively.

Non-Vested Stock and Common Stock Equivalent Units

In 2011, 2010, and 2009, Cleco granted non-vested stock and in 2010 and 2009 common stock equivalent units (CEUs) were granted to certain employees. The non-vested stock is classified as equity since the grant can only be settled in shares of Cleco Corporation common stock. The recipients of the non-vested stock can vote the shares; however, dividends are not paid until the end of the service period and only in proportion to the non-vested stock that actually vests. The CEUs granted are classified as liabilities since the grant is currently settled in cash. Recipients of the CEUs will receive a dividend equivalent under the same terms as the dividends paid on the non-vested stock. In order to vest, both instruments require the satisfaction of a service requirement and a market-based requirement. Recipients of both types of instruments are eligible to receive opportunity instruments if certain market-based measures are exceeded.

At December 31, 2011, the number of target and opportunity restricted shares and CEUs previously granted for which restrictions had not lapsed totaled 825,254. Cleco also grants to employees and directors non-vested stock with only a service period requirement. These grants require the satisfaction of a pre-determined service period in order for the shares to vest. The employees and directors can vote these shares and, with the exception of non-vested shares granted to three officers during 2011, receive dividends on the shares during the vesting period. Dividends on the non-vested shares granted to officers during 2011 will be accrued during the vesting period and paid upon lapse of restrictions. At December 31, 2011, the number of shares of non-vested stock previously granted with only a service period requirement for which the period had not ended was 151,314.

The fair value of shares of non-vested stock granted in 2011, 2010, and 2009 under the LTICP is estimated on the date of grant, and the CEUs granted in 2010 and 2009 under the LTICP are marked-to-market using the Monte Carlo simulation model with the assumptions listed in the following table. There were no CEUs granted in 2011.



												AT DECEMBER 31,
				2011					2010						2009
	NON-VESTED STOCK			CEUs		NON-VESTED STOCK			CEUs			NON-VESTED STOCK			CEUs
Expected term (in years) ⁽¹⁾	3.0			—		3.0			3.0			3.0			3.0
Volatility of Cleco stock ⁽²⁾	28.5		%	—		30.6		%	28.6		%	29.9		%	30.0		%
Correlation between Cleco stock volatility and peer group	63.2		%	—		60.6		%	62.5		%	62.5		%	63.0		%
Expected dividend yield	3.3		%	—		3.5		%	3.9		%	4.1		%	4.0		%
Weighted average fair value (Monte Carlo model)	$	34.88		$	—	$	27.92		$	32.81		$	25.93		$	30.81

(1) The expected term was based on the service period of the award.

(2) The volatility rate is based on historical stock prices over an appropriate period, generally equal to the expected term.

A summary of non-vested stock activity during the year ended December 31, 2011, is presented in the following table.



	SHARES		WEIGHTED-AVERAGE GRANT-DATE FAIR VALUE		UNITS		WEIGHTED-AVERAGE FAIR VALUE
	NON-VESTED STOCK				CEUs
Non-vested at January 1, 2011	263,709		$	25.34	126,547		$	38.86
Granted	223,662		$	34.72	—		$	—
Vested	(112,049	)	$	24.78	(66,663	)	$	73.62
Forfeited	(4,591	)	$	34.88	—		$	—
Non-vested at December 31, 2011	370,731		$	31.05	59,884		$	42.22

The fair value of shares of non-vested stock which vested during the years ended December 31, 2011, 2010, and 2009 was $4.0 million, $2.4 million, and $2.6 million, respectively.

During the years ended December 31, 2011, 2010, and 2009, Cleco did not modify any of the terms of outstanding awards. In all periods presented, Cleco has recognized stock-based compensation expense for these provisions, which is known as the non-substantive vesting period approach. The grants of non-vested stock to employees in January 2011, 2010, and 2009 did not contain the accelerated vesting provisions included in the prior years’ grants.

On January 1, 2010, the 2010 LTICP became effective. A maximum of 2,250,000 shares of Cleco Corporation common stock could be granted under the 2010 LTICP. As of December 31, 2011, there were 1,728,489 shares available for future grants under the 2010 LTICP. Grants and awards made under the 2000 LTICP will remain outstanding in accordance with its existing terms. At December 31, 2011, there were stock options to purchase 94,070 shares of Cleco Corporation common stock and 62,386 shares of non-vested Cleco Corporation common stock outstanding under the 2000 LTICP. Equity instruments awarded to employees and directors historically have come from issuing new shares of common stock; however, future awards may come from purchasing outstanding shares of common stock through Cleco Corporation’s common stock repurchase program. As of December 31, 2011, there were 167,248 non-vested share-based compensation arrangements granted under the LTICP that are expected to vest over an average period of 1.4 years. The total unrecognized before-tax compensation cost was $4.8 million for non-vested stock-based compensation arrangements granted under the LTICP.

Employee Stock Purchase Plan

Regular, full-time, and part-time employees of Cleco Corporation and its participating subsidiaries, except officers, general managers, and employees who own 5% or more of Cleco Corporation’s stock, may participate in the ESPP. An eligible employee enters into an option agreement to become a participant in the ESPP. Under the agreement, the employee authorizes payroll deductions in an amount not less than $10 but not more than $350 each pay period. Payroll deductions are accumulated during a calendar quarter and applied to the purchase of common stock at the end of each quarter, which is referred to as an “offering period.” Pending the purchase of common stock, payroll deductions remain as general assets of Cleco. No trust or other fiduciary account has been established in connection with the ESPP. At the end of each offering period, payroll deductions are automatically applied to the purchase of shares of common stock. The number of shares of common stock purchased is determined by dividing each participant’s payroll deductions during the offering period by the option price of a share of common stock.

A maximum of 734,000 shares of common stock may be purchased under the ESPP, subject to adjustment for changes in the capitalization of Cleco Corporation. The Compensation Committee of Cleco Corporation’s Board of Directors administers the ESPP. The Compensation Committee and the Board of Directors each possess the authority to amend the ESPP, but shareholder approval is required for any amendment that increases the number of shares covered by the ESPP. In January 2009, the Board of Directors approved and authorized an additional 50,000 shares of common stock to be reserved for issuance under the DRIP Feature of the ESPP. As of December 31, 2011, there were 432,756 shares of common stock left to be purchased under the ESPP.

Common Stock Repurchase Program

In January 2011, Cleco Corporation’s Board of Directors approved the implementation of a new common stock repurchase program. This program authorizes management to repurchase, from time to time, shares of common stock so that Cleco’s diluted average shares of common stock outstanding remain approximately equal to its diluted average shares of common stock outstanding for 2010. Under this program, purchases may be made on a discretionary basis at times and in amounts as determined by management, subject to market conditions, legal requirements and other factors. Purchases under the program will not be announced in advance and may be made in the open market or through privately negotiated transactions. In August 2011, Cleco Corporation repurchased 400,000 shares of common stock.

Preferred Stock

On June 24, 2011, Cleco Corporation redeemed all 10,288 outstanding shares of its 4.5% preferred stock. The redemption price was $101 per share plus accrued and unpaid dividends to the redemption date, or $101.296 per share. As of the redemption date, no shares of 4.5% preferred stock were outstanding. Holders are no longer entitled to dividends and all rights of such holders as shareholders of Cleco Corporation by reason of their ownership of such 4.5% preferred stock have ceased.