Eversource 2003 Annual Report Download - page 70

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In 1997, 500,000 options with a weighted average exercise price of
$9.625 were granted. These options, of which 350,000 are outstanding
and exercisable at December 31, 2003, have a remaining contractual life
of 3.63 years. Excluding these options from those outstanding at
December 31, 2003, the resulting range of exercise prices is $14.9375
to $22.25.
For certain options that were granted in 2002, 2001 and 2000, the vesting
schedule for these options is ratably over three years from the date of
grant. Additionally, certain options granted in 2002, 2001 and 2000 vest
50 percent at the date of grant and 50 percent one year from the date
of grant, while other options granted in 2002 vest 100 percent after
five years.
The fair value of each stock option grant has been estimated on the
date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions. No stock options were granted
during 2003.
2002 2001
Risk-free interest rate 4.86% 5.34%
Expected life 10 years 10 years
Expected volatility 23.71% 25.47%
Expected dividend yield 2.11% 2.11%
The weighted average grant date fair values of options granted during
2002 and 2001 were $5.64 and $6.94, respectively. The weighted
average remaining contractual lives for the options outstanding at
December 31, 2003 is 6.79 years.
For further information regarding equity-based compensation, see
Note 1M, “Summary of Significant Accounting Policies — Equity-Based
Compensation.”
Incentive Plans: Under the Northeast Utilities Incentive Plan (Incentive Plan),
NU is authorized to grant various types of awards, including restricted
stock, performance units, restricted stock units, and stock options to
eligible employees and board members. The number of shares that may
be utilized for grants and awards during a given calendar year may not
exceed the aggregate of one percent of the total number of shares of
NU common shares outstanding as of the first day of that calendar year
and the shares not utilized in previous years. At December 31, 2003 and
2002, NU had 1,649,268 and 2,440,339 shares of common stock,
respectively, registered for issuance under the Incentive Plan.
Restricted Stock: During 2003, NU granted 417,222 shares of restricted
stock under the Incentive Plan. The shares granted in 2003 had a fair
value of $6.1 million when granted and were recorded as an offset to
shareholders’ equity. NU also made several grants of restricted stock
during 2002 and 2001 under the Incentive Plan. During 2003, 2002 and
2001, $2 million, $1 million and $1.2 million, respectively, was expensed
related to restricted stock.
Performance Units and Restricted Stock Units: Under the Incentive Plan,
NU also granted 35,303 and 38,847 performance units during 2003 and
2002, respectively. There were no performance units granted in 2001.
The performance units vest ratably over three years and will be paid in
cash at the end of the vesting period. NU records a liability for the
performance units based on the achievement of the performance unit
goals. A liability of $1.5 million and $1.3 million was recorded at
December 31, 2003 and 2002, respectively, for these performance units.
During 2003 and 2002, $0.2 million and $1.3 million, respectively, was
expensed related to these performance units.
During 2003, 75,000 restricted stock units were granted, all of which
were forfeited effective January 1, 2004.
Stock Options: Prior to 2003, NU granted stock options to certain
employees. The exercise price of stock options, as set at the time of
grant, is equal to the fair market value per share at the date of grant,
and therefore no equity-based compensation cost is reflected in net
income. No stock options were granted during 2003, and stock option
transactions for 2002 and 2001 are as follows:
Exercise Price Per Share
Options Range Weighted Average
Outstanding — December 31, 2000 2,433,862 $ 9.3640 – $22.2500 $15.2569
Granted 817,300 $17.4000 – $21.0300 $20.2065
Exercised (108,779) $ 9.3640 – $19.5000 $16.0970
Forfeited and cancelled (132,467) $14.8750 – $21.0300 $18.2217
Outstanding — December 31, 2001 3,009,916 $ 9.6250 – $22.2500 $16.4467
Granted 1,337,345 $16.5500 – $19.8700 $17.8284
Exercised (262,800) $10.0134 – $19.5000 $15.4666
Forfeited and cancelled (247,152) $14.9375 – $22.2500 $18.3473
Outstanding — December 31, 2002 3,837,309 $ 9.6250 – $22.2500 $16.8738
Exercised (562,982) $ 9.6250 – $19.5000 $14.6223
Forfeited and cancelled (151,005) $14.9375 – $21.0300 $19.0227
Outstanding — December 31, 2003 3,123,322 $ 9.6250 – $22.2500 $17.1270
Exercisable — December 31, 2001 1,712,260 $ 9.6250 – $22.2500 $14.4650
Exercisable — December 31, 2002 1,956,555 $ 9.6250 – $22.2500 $15.3758
Exercisable — December 31, 2003 2,027,413 $ 9.6250 – $22.2500 $16.6969