STOCK-BASED COMPENSATION (Entergy Corporation)

Entergy grants stock options, restricted stock, performance units, and restricted stock units to key employees of the Entergy subsidiaries under its Equity Ownership Plans which are shareholder-approved stock-based compensation plans. Effective May 8, 2015, Entergy’s shareholders approved the 2015 Equity Ownership Plan (2015 Plan). The maximum number of common shares that can be issued from the 2015 Plan for stock-based awards is 6,900,000 with no more than 1,500,000 available for incentive stock option grants. The 2015 Plan applies to awards granted on or after May 8, 2015 and awards expire ten years from the date of grant. As of December 31, 2018, there were 2,006,268 authorized shares remaining for stock-based awards, including 1,500,000 for incentive stock option grants.

Stock Options

Stock options are granted at exercise prices that equal the closing market price of Entergy Corporation common stock on the date of grant. Generally, stock options granted will become exercisable in equal amounts on each of the first three anniversaries of the date of grant. Unless they are forfeited previously under the terms of the grant, options expire 10 years after the date of the grant if they are not exercised.

The following table includes financial information for stock options for each of the years presented:



	2018	2017	2016
	(In Millions)
Compensation expense included in Entergy’s consolidated net income	$4.3	$4.4	$4.4
Tax benefit recognized in Entergy’s consolidated net income	$1.1	$1.7	$1.7
Compensation cost capitalized as part of fixed assets and inventory	$0.7	$0.7	$0.7

Entergy determines the fair value of the stock option grants by considering factors such as lack of marketability, stock retention requirements, and regulatory restrictions on exercisability in accordance with accounting standards. The stock option weighted-average assumptions used in determining the fair values are as follows:



	2018	2017	2016
Stock price volatility	17.44%	18.39%	20.38%
Expected term in years	7.33	7.35	7.25
Risk-free interest rate	2.54%	2.31%	1.77%
Dividend yield	4.75%	4.75%	4.50%
Dividend payment per share	$3.58	$3.50	$3.42

Stock price volatility is calculated based upon the daily public stock price volatility of Entergy Corporation common stock over a period equal to the expected term of the award. The expected term of the options is based upon historical option exercises and the weighted average life of options when exercised and the estimated weighted average life of all vested but unexercised options. In 2008, Entergy implemented stock ownership guidelines for its senior executive officers. These guidelines require an executive officer to own shares of Entergy Corporation common stock equal to a specified multiple of his or her salary. Until an executive officer achieves this ownership position the executive officer is required to retain 75% of the net-of-tax net profit upon exercise of the option to be held in Entergy Corporation common stock. The reduction in fair value of the stock options due to this restriction is based upon an estimate of the call option value of the reinvested gain discounted to present value over the applicable reinvestment period.

A summary of stock option activity for the year ended December 31, 2018 and changes during the year are presented below:



	Number of Options		Weighted- Average Exercise Price	Aggregate Intrinsic Value	Weighted- Average Contractual Life
Options outstanding as of January 1, 2018	5,164,854		$83.26
Options granted	687,400		$78.08
Options exercised	(1,419,087	)	$72.76
Options forfeited/expired	(1,439,834	)	$108.00
Options outstanding as of December 31, 2018	2,993,333		$75.14	$32,708,805	6.48 years
Options exercisable as of December 31, 2018	1,709,905		$75.64	$17,826,376	4.99 years
Weighted-average grant-date fair value of options granted during 2018	$6.99

The weighted-average grant-date fair value of options granted during the year was $6.54 for 2017 and $7.40 for 2016. The total intrinsic value of stock options exercised was $19 million during 2018, $11 million during 2017, and $5 million during 2016. The intrinsic value, which has no effect on net income, of the outstanding stock options exercised is calculated by the positive difference between the weighted average exercise price of the stock options granted and Entergy Corporation’s common stock price as of December 31, 2018. The aggregate intrinsic value of the stock options outstanding as of December 31, 2018 was $33 million. The intrinsic value of “in the money” stock options is $34 million as of December 31, 2018. Entergy recognizes compensation cost over the vesting period of the options based on their grant-date fair value. The total fair value of options that vested was approximately $4 million during 2018, $6 million during 2017, and $5 million during 2016. Cash received from option exercises was $103 million for the year ended December 31, 2018. The tax benefits realized from options exercised was $5 million for the year ended December 31, 2018.

The following table summarizes information about stock options outstanding as of December 31, 2018:



				Options Outstanding			Options Exercisable
Range of				As of	Weighted-Average Remaining Contractual Life-Yrs.	Weighted Average Exercise Price	Number Exercisable as of	Weighted Average Exercise Price
Exercise Prices				12/31/2018	Weighted-Average Remaining Contractual Life-Yrs.	Weighted Average Exercise Price	12/31/2018	Weighted Average Exercise Price
	$51	-	$64.99	322,500	4.71	$63.70	322,500	$63.70
	$65	-	$78.99	2,229,833	6.81	$73.88	946,405	$73.07
	$79	-	$91.99	441,000	6.08	$89.90	441,000	$89.90
	$51	-	$91.99	2,993,333	6.48	$75.14	1,709,905	$75.64

Stock-based compensation cost related to non-vested stock options outstanding as of December 31, 2018 not yet recognized is approximately $5 million and is expected to be recognized over a weighted-average period of 1.68 years.

Restricted Stock Awards

Entergy grants restricted stock awards earned under its stock benefit plans in the form of stock units. One-third of the restricted stock awards will vest upon each anniversary of the grant date and are expensed ratably over the three year vesting period. Shares of restricted stock have the same dividend and voting rights as other common stock and are considered issued and outstanding shares of Entergy upon vesting. In January 2018 the Board approved and Entergy granted 333,850 restricted stock awards under the 2015 Equity Ownership Plan. The restricted stock awards were made effective as of January 25, 2018 and were valued at $78.08 per share, which was the closing price of Entergy Corporation’s common stock on that date.

The following table includes information about the restricted stock awards outstanding as of December 31, 2018:



	Shares		Weighted-Average Grant Date Fair Value Per Share
Outstanding shares at January 1, 2018	709,611		$72.92
Granted	364,306		$77.75
Vested	(332,614	)	$75.54
Forfeited	(47,777	)	$73.37
Outstanding shares at December 31, 2018	693,526		$74.17

The following table includes financial information for restricted stock for each of the years presented:



	2018	2017	2016
	(In Millions)
Compensation expense included in Entergy’s consolidated net income	$19.8	$19.7	$19.8
Tax benefit recognized in Entergy’s consolidated net income	$5.1	$7.6	$7.6
Compensation cost capitalized as part of fixed assets and inventory	$5.7	$5.2	$4.5

The total fair value of the restricted stock awards granted was $28 million, $29 million, and $29 million for the years ended December 31, 2018, 2017, and 2016.

The total fair value of the restricted stock awards vested was $25 million, $24 million, and $23 million for the years ended December 31, 2018, 2017, and 2016, respectively.

Long-Term Performance Unit Program

Entergy grants long-term incentive awards earned under its stock benefit plans in the form of performance units, which represents the value of one share of Entergy Corporation common stock at the end of the three-year performance period, plus dividends accrued during the performance period. The Long-Term Performance Unit Program specifies a minimum, target, and maximum achievement level, the achievement of which will determine the number of performance units that may be earned. Entergy measures performance by assessing Entergy’s total shareholder return relative to the total shareholder return of the companies in the Philadelphia Utility Index. For the 2018-2020 performance period, a cumulative Utility earnings metric was added to the Long-Term Performance Unit Program to supplement the relative total shareholder return measure that historically has been used in this program with each measure equally weighted. For each metric, there is no payout for performance that falls within the lowest quartile of performance. For top quartile performance, a maximum payout of 200% of target is earned.

In January 2018 the Board approved and Entergy granted 182,408 performance units under the 2015 Equity Ownership and Long-Term Cash Incentive Plan. The performance units were made effective as of January 25, 2018, and half were valued at $78.08 per share, the closing price of Entergy’s common stock on that date; and half were valued at $86.75 per share. Shares of the performance units have the same dividend and voting rights as other common stock, are considered issued and outstanding shares of Entergy upon vesting, and are expensed ratably over the 3-year vesting period.

The following table includes information about the long-term performance units outstanding at the target level as of December 31, 2018:



	Shares		Weighted-Average Grant Date Fair Value Per Share
Outstanding shares at January 1, 2018	534,151		$83.60
Granted	199,859		$82.03
Vested	(50,812	)	$99.02
Forfeited	(116,572	)	$95.51
Outstanding shares at December 31, 2018	566,626		$79.21

The following table includes financial information for the long-term performance units for each of the years presented:



	2018	2017		2016
	(In Millions)
Compensation expense included in Entergy’s consolidated net income	$11.5		$10.8		$12.3
Tax benefit recognized in Entergy’s consolidated net income	$2.9		$4.2		$4.8
Compensation cost capitalized as part of fixed assets and inventory	$3.3		$3.0		$2.9

The total fair value of the long-term performance units granted was $16 million, $19 million, and $21 million for the years ended December 31, 2018, 2017, and 2016, respectively.

In January 2018, Entergy issued 50,812 shares of Entergy Corporation common stock at a share price of $78.51 for awards earned and dividends accrued under the 2015-2017 Long-Term Performance Unit Program. In January 2017, Entergy issued 86,964 shares of Entergy Corporation common stock at a share price of $71.89 for awards earned and dividends accrued under the 2014-2016 Long-Term Performance Unit Program. In January 2016, Entergy issued 54,103 shares of Entergy Corporation common stock at a share price of $68.09 for awards earned and dividends accrued under the 2013-2015 Long-Term Performance Unit Program.

Restricted Stock Unit Awards

Entergy grants restricted stock unit awards earned under its stock benefit plans in the form of stock units that are subject to time-based restrictions. The restricted stock units may be settled in shares of Entergy Corporation common stock or the cash value of shares of Entergy Corporation common stock at the time of vesting. The costs of restricted stock unit awards are charged to income over the restricted period, which varies from grant to grant. The average vesting period for restricted stock unit awards granted is 39 months. As of December 31, 2018, there were 186,763 unvested restricted stock units that are expected to vest over an average period of 18 months.

The following table includes information about the restricted stock unit awards outstanding as of December 31, 2018:



	Shares		Weighted-Average Grant Date Fair Value Per Share
Outstanding shares at January 1, 2018	201,570		$75.48
Granted	22,850		$79.11
Vested	(37,657	)	$72.97
Outstanding shares at December 31, 2018	186,763		$76.43

The following table includes financial information for restricted stock unit awards for each of the years presented:



	2018	2017	2016
	(In Millions)
Compensation expense included in Entergy’s consolidated net income	$2.9	$2.5	$2.2
Tax benefit recognized in Entergy’s consolidated net income	$0.7	$1.0	$0.8
Compensation cost capitalized as part of fixed assets and inventory	$0.7	$0.6	$0.4

The total fair value of the restricted stock unit awards granted was $2 million, $3 million, and $5 million for the years ended December 31, 2018, 2017, and 2016, respectively.

The total fair value of the restricted stock unit awards vested was $3 million, $0.4 million, and $2 million for the years ended December 31, 2018, 2017, and 2016, respectively.