Common Equity

9 Months Ended

Sep. 30, 2011

Stockholders' Equity Note [Abstract]

COMMON EQUITY

COMMON EQUITY

Share-Based Compensation Expense:   For a description of share-based compensation, including stock options, restricted stock and performance units, see Note I -- Common Equity in our 2010 Annual Report on Form 10-K. We utilize the straight-line attribution method for recognizing share-based compensation expense. Accordingly, for employee awards, equity classified share-based compensation cost is measured at the grant date based on the fair value of the award, and is recognized as expense over the requisite service period. There were no modifications to outstanding stock options during the period other than necessary adjustments as a result of our stock split. Shares purchased on the open market by our independent agents are currently used to satisfy share-based awards.

The following table summarizes recorded pre-tax share-based compensation expense and the related tax benefit for share-based awards made to our employees and directors:

	Three Months Ended September 30				Nine Months Ended September 30
	2011		2010		2011		2010
	(Millions of Dollars)
Stock options	$	0.6	$	1.9	$	1.9	$	5.7
Performance units	7.3		10.3		11.7		20.9
Restricted stock	0.4		0.3		1.3		1.1
Share-based compensation expense	$	8.3	$	12.5	$	14.9	$	27.7
Related Tax Benefit	$	3.4	$	5.0	$	6.0	$	11.1

Stock Option Activity:   During the first nine months of 2011, the Compensation Committee granted 458,180 non-qualified stock options that had an estimated fair value of $3.17 per share. During the first nine months of 2010, the Compensation Committee granted 549,500 stock options that had an estimated fair value of $3.36 per share. The following assumptions were used to value the options using a binomial option pricing model:

	2011		2010
Risk-free interest rate	0.2% - 3.4%		0.2% - 3.9%
Dividend yield	3.9	%	3.7	%
Expected volatility	19.0	%	20.3	%
Expected forfeiture rate	2.0	%	2.0	%
Expected life (years)	5.5		5.9

The risk-free interest rate is based on the U.S. Treasury interest rate whose term is consistent with the expected life of the stock options. Dividend yield, expected volatility, expected forfeiture rate and expected life assumptions are based on our historical experience.

The following is a summary of our stock option activity for the three and nine months ended September 30, 2011:

					Weighted-
					Average
			Weighted-		Remaining	Aggregate
	Number of		Average		Contractual Life	Intrinsic Value
Stock Options	Options		Exercise Price		(Years)	(Millions)
Outstanding as of July 1, 2011	11,925,226		$	21.40
Granted	—		$	—
Exercised	(272,412	)	$	17.82
Forfeited	—		$	—
Outstanding as of September 30, 2011	11,652,814		$	21.49
Outstanding as of January 1, 2011	13,036,466		$	20.81
Granted	458,180		$	29.35
Exercised	(1,841,832	)	$	18.68
Forfeited	—		$	—
Outstanding as of September 30, 2011	11,652,814		$	21.49	5.5	$	114.3
Exercisable as of September 30, 2011	8,499,304		$	20.97	4.7	$	87.7

The intrinsic value of options exercised was $3.6 million and $22.6 million for the three and nine months ended September 30, 2011, and $26.8 million and $51.9 million for the same periods in 2010, respectively. Cash received from options exercised was $34.4 million and $76.0 million for the nine months ended September 30, 2011 and 2010, respectively. The actual tax benefit realized for the tax deductions from option exercises for the same periods was approximately $9.0 million and $20.2 million, respectively.

All outstanding stock options to purchase shares of common stock were included in the computation of diluted earnings per share during the third quarter of 2011.

The following table summarizes information about stock options outstanding as of September 30, 2011:

	Options Outstanding				Options Exercisable
		Weighted-Average				Weighted-Average
				Remaining				Remaining
	Number of	Exercise		Contractual	Number of	Exercise		Contractual
Range of Exercise Prices	Options	Price		Life (Years)	Options	Price		Life (Years)
$11.33 to $17.10	2,405,276	$	15.99	2.5	2,405,276	$	15.99	2.5
$19.74 to $21.11	3,771,448	$	20.61	6.2	1,569,748	$	19.91	4.6
$23.88 to $29.35	5,476,090	$	24.50	6.3	4,524,280	$	23.98	5.8
	11,652,814	$	21.49	5.5	8,499,304	$	20.97	4.7

The following table summarizes information about our non-vested options during the three and nine months ended September 30, 2011:

Non-Vested Stock Options	Number of Options		Weighted-Average Fair Value
Non-vested as of July 1, 2011	3,153,510		$	3.78
Granted	—		$	—
Vested	—		$	—
Forfeited	—		$	—
Non-vested as of September 30, 2011	3,153,510		$	3.78
Non-vested as of January 1, 2011	5,272,570		$	4.27
Granted	458,180		$	3.17
Vested	(2,577,240	)	$	4.66
Forfeited	—		$	—
Non-vested as of September 30, 2011	3,153,510		$	3.78

As of September 30, 2011, total compensation costs related to non-vested stock options not yet recognized was approximately $1.3 million, which is expected to be recognized over the next 14 months on a weighted-average basis.

Restricted Shares:   During the first nine months of 2011, the Compensation Committee granted 74,850 restricted shares to certain key employees and directors. These awards have a three-year vesting period, and generally, one-third of the award vests on each anniversary of the grant date. During the vesting period, restricted share recipients have voting rights and are entitled to dividends in the same manner as other shareholders.

The following restricted stock activity occurred during the three and nine months ended September 30, 2011:

Restricted Shares	Number of Shares		Weighted-Average Grant Date Fair Value
Outstanding as of July 1, 2011	198,820
Granted	—		$	—
Released	—		$	—
Forfeited	—		$	—
Outstanding as of September 30, 2011	198,820
Outstanding as of January 1, 2011	205,404
Granted	74,850		$	29.00
Released	(78,624	)	$	19.03
Forfeited	(2,810	)	$	26.45
Outstanding as of September 30, 2011	198,820

We record the market value of the restricted stock awards on the date of grant, and then we charge their value to expense over the vesting period of the awards. The intrinsic value of restricted stock vesting was zero and $2.3 million for the three and nine months ended September 30, 2011, and $0.1 million and $1.1 million for the same periods in 2010, respectively. The actual tax benefit realized for the tax deductions from released restricted shares was zero and $0.7 million for the three and nine months ended September 30, 2011, and $0.1 million and $0.3 million for the same periods in 2010, respectively.

As of September 30, 2011, total compensation cost related to restricted stock not yet recognized was approximately $2.9 million, which is expected to be recognized over the next 22 months on a weighted-average basis.

Performance Units:   In January 2011 and 2010, the Compensation Committee granted 435,690 and 555,830 performance units, respectively, to officers and other key employees under the Wisconsin Energy Performance Unit Plan. Under the grants, the ultimate number of units that will be awarded is dependent upon the achievement of certain financial performance of our stock over a three-year period. Under the terms of the award, participants may earn between 0% and 175% of the base performance unit award. All grants are settled in cash. We are accruing compensation costs over the three-year period based on our estimate of the final expected value of the awards. Performance units earned as of December 31, 2010 and 2009 vested and were settled during the first quarter of 2011 and 2010, and had a total intrinsic value of $12.6 million and $9.8 million, respectively. The actual tax benefit realized for the tax deductions from the settlement of performance units was approximately $4.3 million and $3.4 million, respectively. As of September 30, 2011, total compensation cost related to performance units not yet recognized was approximately $19.2 million, which is expected to be recognized over the next 20 months on a weighted-average basis.

Restrictions:Wisconsin Energy's ability as a holding company to pay common dividends primarily depends on the availability of funds received from its non-utility subsidiary, We Power, and its utility subsidiaries. Various financing arrangements and regulatory requirements impose certain restrictions on the ability of our subsidiaries to transfer funds to us in the form of cash dividends, loans or advances. In addition, under Wisconsin law, Wisconsin Electric and Wisconsin Gas are prohibited from loaning funds, either directly or indirectly, to Wisconsin Energy. See Note I -- Common Equity in our 2010 Annual Report on Form 10-K for additional information on these and other restrictions.

We do not believe that these restrictions will materially affect our operations or limit any dividend payments in the foreseeable future.

Comprehensive Income:   Comprehensive income includes all changes in equity during a period except those resulting from investments by and distributions to owners.

Our total comprehensive income for the nine months ended September 30, 2011 and 2010 was $410.4 million and $330.9 million, respectively, which approximates net income for each of those periods.

Share Repurchase Program:   We purchased 1.9 million shares of our common stock at a cost of $60.1 million and 4.9 million shares at a cost of $128.5 million for the nine months ended September 30, 2011 and 2010, respectively, to fulfill exercised stock options and restricted stock awards. In addition, on May 5, 2011, our Board of Directors authorized a share repurchase program for up to $300 million of our common stock through the end of 2013. Funds for the repurchases are expected to come from internally generated funds and working capital supplemented, if required in the short-term, by the sale of commercial paper. The repurchase program does not obligate Wisconsin Energy to acquire any specific number of shares and may be suspended or terminated by the Board of Directors at any time. Through September 30, 2011, we repurchased approximately 2.5 million shares pursuant to this program at an average cost of $30.32 per share and a total cost of $75.0 million.