9. Common Stock

Stock-Based Compensation

On May 5, 2010, the shareholders approved the 2010 Equity Incentive Plan (2010 Plan) as an amendment and restatement of both the company’s 2004 Equity Incentive Plan (2004 Plan) and the 1997 Director Equity Plan (1997 Plan, and together with the 2004 Plan, the Old Plans). The 2010 Plan superseded the Old Plans and no additional grants will be made under the Old Plans. The rights of the holders of outstanding options, unvested restricted stock or other outstanding awards under the Old Plans were not affected. The purpose of the 2010 Plan is to attract and retain key employees and non-employee directors, to enable the company to provide equity-based incentives relating to achieving long-range performance goals and to enable award recipients to participate in the long-term growth of the company. The 2010 Plan is administered by the Compensation Committee of the Board of Directors (Committee), which may grant awards to any employee of the company who is capable of contributing significantly to the successful performance of the company. Only the Board of Directors may grant awards to any non-employee members of the Board of Directors.

The 2010 Plan amended the 2004 Plan to reduce the number of shares of common stock subject to grants to 4.0 million shares (a reduction of 3.0 million shares), remove the cap on shares available for stock grant, place various limitations on the terms of awards granted under the 2010 Plan, remove the ability to make awards to consultants of the company and reapprove the business criteria upon which objective performance goals may be established by the Committee to continue to permit the company to take federal tax deductions for performance-based awards made to certain senior officers under Section 162(m) of the tax code.

The types of awards that can be granted under the 2010 Plan include stock options, stock grants and stock equivalents. Stock options were last awarded in 2006 under the Old Plans. Stock grants and time-vested restricted stock are valued at the fair market value on the date of grant, with expense recognized over the vesting period, which is normally three years. Time-vested restricted stock granted to directors prior to 2011 vest one-third each year. Beginning in 2011, time-vested restricted stock granted to directors vest in one year. Performance-based restricted stock has been granted to officers and employees, with shares potentially vesting after three years. The total awards for performance-based restricted stock vest based on the total return of TECO Energy common stock compared to a peer group of utility stocks. The performance-based grants can vest between 0% and 150% of the original grant. Dividends are paid on all time-vested stock grants during the vesting period. Dividends are paid during the vesting period on all performance stock granted prior to 2010. Beginning in 2010, dividends are accrued during the vesting period on all performance stock granted under the 2010 Plan and paid at vesting date on the shares that vest. The value of time-vested restricted stock and stock grants are based on the fair market value of TECO Energy common stock at the time of grant.

The fair market value of stock options is determined using the Black-Scholes valuation model, and the company uses the following methods to determine its underlying assumptions: expected volatilities are based on the historical volatilities; the expected term of options granted is based on accounting guidance for the simplified method of averaging the vesting term and the original contractual term; the risk-free interest rate is based on the U.S. Treasury implied yield on zero-coupon issues (with a remaining term equal to the expected term of the option); and the expected dividend yield is based on the current annual dividend amount divided by the stock price on the date of grant.

The fair market value of performance-based restricted stock awards is determined using the Monte-Carlo valuation model, and the company uses the following methods to determine its underlying assumptions: expected volatilities are based on the historical volatilities; the expected term of the awards is based on the performance measurement period (which is generally three years); the risk-free interest rate is based on the U.S. Treasury implied yield on zero-coupon issues (with a remaining term equal to the expected term of the award); and the expected dividend yield is based on the current annual dividend amount divided by the stock price on the date of grant, with continuous compounding.


Assumptions	2012		2011		2010

Assumptions applicable to performance-based restricted stock
Risk-free interest rate		0.38%		0.96%		1.37%
Expected lives (in years)		3		3		3
Expected stock volatility		20.99%		34.61%		35.83%
Dividend yield		4.78%		4.48%		4.90%

Under the 2010 Plan and the Old Plans 1.0 million, 0.8 million and 0.8 million shares of restricted stock were granted in 2012, 2011 and 2010, respectively, with weighted-average fair values per share of $15.96, $18.44 and $17.22, respectively. The total fair market value of awards vesting during 2012, 2011 and 2010 was $14.3 million, $13.4 million and $10.2 million, respectively, which includes stock grants, time-vested restricted stock and performance-based restricted stock. As of Dec. 31, 2012, there was $17.4 million of unrecognized compensation cost related to all non-vested awards that is expected to be recognized over a weighted- average period of two years.

The following table provides additional information on compensation costs and income tax benefits and excess tax benefits related to the stock-based compensation awards.


(millions)	2012		2011		2010

Compensation costs ⁽¹⁾	$	12.0	$	9.1	$	7.4

Income tax benefits ⁽¹⁾		4.6		3.5		2.9

Excess tax benefits ⁽²⁾		2.6		1.7		0.8

(1) Reflected on the Consolidated Statements of Income.
(2) Reflected as financing activities on the Consolidated Statements of Cash Flows.

The aggregate intrinsic value of stock options exercised was $0.3 million, $1.5 million and $0.7 million for the periods ended Dec. 31, 2012, 2011 and 2010, respectively. Cash received from option exercises under all share-based payment arrangements was $1.1 million, $5.0 million and $2.9 million for the periods ended Dec. 31, 2012, 2011 and 2010, respectively. The income tax benefit realized from stock option exercises was $0.1 million, $0.6 million and $0.3 million for the periods ended Dec. 31, 2012, 2011 and 2010, respectively.

A summary of non-vested shares of restricted stock for the 2010 Plan is shown as follows:


Nonvested Restricted Stock

	Time-Based Restricted Stock ⁽¹⁾					Performance-Based Restricted Stock ⁽¹⁾
	Number of Shares (thousands)			Weighted - Avg. Grant Date Fair Value (per share)		Number of Shares (thousands)			Weighted- Avg. Grant Date Fair Value (per share)

Nonvested balance at Dec. 31, 2011		579		$	15.68		1,357		$	15.29
Granted		270			17.98		722			15.21
Vested		(250	)		12.50		(572	)		10.33
Forfeited		(7	)		18.16		(17	)		17.11

Nonvested balance at Dec. 31, 2012		592		$	18.04		1,490		$	17.13
(1) The weighted-average remaining contractual term of restricted stock is two years.

Stock option transactions during 2012 under the 2010 Plan are summarized as follows:



	Number of Shares (thousands)			Weighted-Avg. Option Price (per share)		Weighted-Avg. Remaining Contractual Term (years)		Aggregate Intrinsic Value (millions)

Outstanding balance at Dec. 31, 2011		3,529			$20.01
Granted		0			0.00
Exercised		(78	)		13.52
Cancelled		(1,364	)		27.97

Outstanding balance at Dec. 31, 2012 ⁽¹⁾		2,087			$15.05		2		$3.6
Exercisable at Dec. 31, 2012 ⁽¹⁾		2,087			$15.05		2		$3.6
Available for future grant at Dec. 31, 2012		2,978
(1) Option prices range from $11.09 to $19.01 per share.

As of Dec. 31, 2012, the options outstanding and exercisable under the 2010 Plan are summarized below:


Range of Option Prices (per share)	Option Shares (thousands)		Weighted-Avg. Option Price (per share)	Weighted-Avg. Remaining Contractual Life

$11.09 - $13.64		750	$12.80	1 Years
$16.21 - $19.01		1,337	$16.32	3 Years

Total		2,087	$15.05	2 Years

Dividend Reinvestment Plan

In 1992, TECO Energy implemented a Dividend Reinvestment and Common Stock Purchase Plan. TECO Energy raised $3.7 million of common equity from this plan in 2010. TECO Energy purchased shares on the open market for this plan in 2011 and 2012, resulting in no increase in equity.