XML 1113 R18.htm IDEA: XBRL DOCUMENT v2.4.0.8
EMPLOYEE STOCK OWNERSHIP PLAN
 12 Months Ended
Dec. 31, 2013
Notes To Consolidated Financial Statements [Abstract]  
Shareholders' Equity and Share-based Payments [Text Block]

C.       Employee Stock Ownership Plan

NU maintains an ESOP for purposes of allocating shares to employees participating in the NUSCO 401(k) Plan. Allocations of NU common shares were made from NU treasury shares to satisfy the NUSCO 401(k) Plan obligation to provide a portion of the matching contribution in NU common shares.

 

For treasury shares used to satisfy the 401(k) Plan matching contributions, compensation expense is recognized equal to the fair value of shares that have been allocated to participants. Any difference between the fair value and the average cost of the allocated treasury shares is charged or credited to Capital Surplus, Paid In. For the years ended December 31, 2013, 2012 and 2011, NU recognized $9.1 million, $8.9 million and $8.8 million, respectively, of compensation expense related to the ESOP.

D.       Share-Based Payments

Share-based compensation awards are recorded using a fair-value-based method at the date of grant. NU, CL&P, NSTAR Electric, PSNH and WMECO record compensation expense related to these awards, as applicable, for shares issued or sold to their respective employees and officers, as well as the allocation of costs associated with shares issued or sold to NU's service company employees and officers that support CL&P, NSTAR Electric, PSNH and WMECO.

 

Upon consummation of the merger with NSTAR, the NSTAR 1997 Share Incentive Plan and the NSTAR 2007 Long-Term Incentive Plan were assumed by NU. Share-based awards granted under the NSTAR Plans and held by NSTAR employees and officers were generally converted into outstanding NU share-based compensation awards with an estimated fair value of $53.2 million. Refer to Note 2, "Merger of NU and NSTAR," for further information regarding the merger transaction. Specifically, as of the merger closing, and as adjusted by the exchange ratio, NU converted (1) outstanding NSTAR stock options into 2,664,894 NU stock options valued at $30.5 million, (2) NSTAR deferred shares and NSTAR performance shares into 421,775 NU RSU's valued at $15.5 million, and (3) NSTAR RSU retention awards into 195,619 NU RSU retention awards valued at $7.2 million.

 

NU Incentive Plan: NU maintains long-term equity-based incentive plans under the NU Incentive Plan in which NU, CL&P, NSTAR Electric, PSNH and WMECO employees, officers and board members are entitled to participate. The NU Incentive Plan was approved in 2007, and authorized NU to grant up to 4,500,000 new shares for various types of awards, including RSUs and performance shares, to eligible employees, officers, and board members. As of December 31, 2013 and 2012, NU had 2,462,668 and 2,502,512 common shares, respectively, available for issuance under the NU Incentive Plan. The aggregate number of common shares authorized for issuance under the NSTAR 2007 Long-Term Incentive Plan was 3,500,000. As of both December 31, 2013 and 2012, there were 977,922 NU common shares available for issuance under this Plan. No additional awards will be granted under the NSTAR 1997 Share Incentive Plan. NU also maintains an ESPP for eligible employees.

 

NU accounts for its various share-based plans as follows:

 

  • RSUs - NU records compensation expense, net of estimated forfeitures, on a straight-line basis over the requisite service period based upon the fair value of NU's common shares at the date of grant. The par value of RSUs is reclassified to Common Stock from APIC as RSUs become issued as common shares.

     

  • Performance Shares - NU records compensation expense, net of estimated forfeitures, on a straight-line basis over the requisite service period. Performance shares vest based upon the extent to which Company goals are achieved. As of December 31, 2013, vesting of outstanding performance shares is based upon both the Company's EPS growth over the requisite service period and the achievement of the Company's share price as compared to an index of similar equity securities during the requisite service period. The fair value of performance shares is determined at the date of grant using a lattice model.

     

  • Stock Options - Stock options issued under the NSTAR Incentive Plan that were outstanding immediately prior to the completion of the merger with NSTAR converted into fully vested options to acquire NU common shares, as adjusted by the exchange ratio. The fair value of these awards on the merger date was included in the purchase price as it represented consideration transferred in the merger. Accordingly, no compensation expense was recorded for these stock options. Additionally, no compensation expense was recorded for stock options issued under the NU Incentive Plan as these stock options were fully vested prior to January 1, 2006.

     

  • ESPP Shares - For shares sold under the ESPP, no compensation expense was recorded as the ESPP qualifies as a non-compensatory plan.

 

RSUs: NU granted RSUs under the annual Long-Term incentive programs that are subject to three-year graded vesting schedules for employees, and one-year graded vesting schedules, or immediate vesting for board members. RSUs are paid in shares, reduced by amounts sufficient to satisfy withholdings for income taxes, subsequent to vesting. A summary of RSU transactions is as follows:

    Weighted Average
  RSUs Grant-Date
  (Units) Fair Value
Outstanding as of January 1, 2011  1,014,479 $ 24.31
Granted  208,533 $ 33.87
Shares issued  (244,782) $ 24.47
Forfeited  (18,310) $ 23.74
Outstanding as of December 31, 2011  959,920 $ 26.36
Granted  614,930 $ 33.04
Converted NSTAR Awards upon Merger  617,394 $ 36.79
Converted from NU Performance Shares upon Merger  451,358 $ 34.32
Shares issued  (363,779) $ 29.05
Forfeited  (96,504) $ 34.97
Outstanding as of December 31, 2012  2,183,319 $ 31.99
Granted  373,939 $ 39.56
Shares issued  (891,129) $ 32.15
Forfeited  (29,689) $ 33.75
Outstanding as of December 31, 2013  1,636,440 $ 33.61

As of December 31, 2013 and 2012, the number and weighted average grant-date fair value of unvested RSUs was 1,162,216 and $36.58 per share, and 1,417,688 and $34.70 per share, respectively. The number and weighted average grant-date fair value of RSUs vested during 2013 was 583,101 and $34.34 per share, respectively. As of December 31, 2013, 474,224 RSUs were fully vested and an additional 1,104,106 are expected to vest.

 

Performance Shares: NU granted performance shares under the annual Long-Term Incentive programs that vested based upon the extent to which the Company achieved targets at the end of three-year performance measurement periods. Performance shares are paid in shares, after the performance measurement period. A summary of performance share transactions is as follows:

  Performance Weighted Average
  Shares Grant-Date
 (Units) Fair Value
Outstanding as of January 1, 2011  248,559 $ 24.72
Granted  244,870 $ 33.76
Shares issued  - $ -
Forfeited  (10,296) $ 30.47
Outstanding as of December 31, 2011  483,133 $ 29.18
Granted  225,935 $ 35.09
Converted to RSUs upon Merger  (451,358) $ 34.32
Shares issued  (106,773) $ 24.52
Forfeited  - $ -
Outstanding as of December 31, 2012  150,937 $ 25.04
Granted  191,961 $ 40.96
Shares issued  (150,944) $ 25.04
Forfeited  (1,526) $ 40.93
Outstanding as of December 31, 2013  190,428 $ 40.96

Upon closing of the merger with NSTAR, 451,358 performance shares under the NU 2011 and 2012 Long-Term Incentive Programs converted to RSUs according to the terms of these programs. The remaining performance shares were measured based upon a modified performance period through the date of the merger, in accordance with the terms of the NU 2010 Incentive Program, and were fully distributed in 2013. As of December 31, 2013, outstanding performance shares pertain to the NU 2013 Long-Term Incentive Program.

 

The total compensation expense and associated future income tax benefit recognized by NU, CL&P, NSTAR Electric, PSNH and WMECO for share-based compensation awards are as follows:

NU  For the Years Ended December 31,
(Millions of Dollars)2013 2012 (1) 2011
Compensation Expense$ 27.0 $ 25.8 $ 12.3
Future Income Tax Benefit  10.7   10.2   4.9

  For the Years Ended December 31,
  2013 2012 2011
(Millions of Dollars)CL&P NSTAR Electric PSNH WMECO CL&P NSTAR Electric PSNH WMECO CL&P NSTAR Electric PSNH WMECO
Compensation                                    
 Expense$6.8 $7.5 $2.3 $1.3 $4.8 $7.4 $1.8 $1.0 $ 7.1 $7.7 $ 2.5 $ 1.4
Future Income Tax                                   
 Benefit 2.7  3.0  0.9  0.5  1.9  2.9  0.7  0.4   2.8  3.0   1.0   0.6

  • NSTAR amounts were included in NU beginning April 10, 2012.

 

As of December 31, 2013, there was $19.5 million of total unrecognized compensation expense related to nonvested share-based awards for NU, $5.8 million for CL&P, $6.3 million for NSTAR Electric, $1.7 million for PSNH and $0.9 million for WMECO. This cost is expected to be recognized ratably over a weighted-average period of 1.64 years for NU, 1.85 years for CL&P, 1.47 years for NSTAR Electric, 1.79 years for PSNH and 1.80 years for WMECO.

 

For the year ended December 31, 2013, additional tax benefits totaling $5.5 million decreased cash flows from financing activities. For the years ended December 31, 2012 and 2011, additional tax benefits totaling $8.5 million and $1.3 million, respectively, increased cash flows from financing activities.

 

Stock Options: Stock options were granted under the NU and NSTAR Incentive Plans. Options currently outstanding expire ten years from the date of grant and are fully vested. The weighted average remaining contractual lives for the options outstanding as of December 31, 2013 is 4.3 years. A summary of stock option transactions is as follows:

          
     Weighted Average Intrinsic Value
   Options Exercise Price (Millions)
Outstanding and Exercisable - January 1, 2011  112,599 $ 18.80   
Exercised  (65,225) $ 18.81 $ 1.0
Forfeited and Cancelled  - $ -   
Outstanding and Exercisable - December 31, 2011  47,374 $ 18.78   
Converted NSTAR Options upon Merger  2,664,894 $ 23.99   
Exercised (1,166,511) $ 22.53 $ 18.7
Forfeited and Cancelled  - $ -   
Outstanding and Exercisable - December 31, 2012  1,545,757 $ 24.92   
Exercised (324,382) $ 20.97 $ 6.7
Forfeited and Cancelled  - $ -   
Outstanding and Exercisable - December 31, 2013  1,221,375 $ 25.97 $ 20.1

Cash received for options exercised during the year ended December 31, 2013 totaled $6.8 million. The tax benefit realized from stock options exercised totaled $2.7 million for the year ended December 31, 2013.

 

Employee Share Purchase Plan: NU maintains an ESPP for eligible employees, which allows for NU common shares to be purchased by employees at the end of successive six-month offering periods at 95 percent of the closing market price on the last day of each six-month period. Employees are permitted to purchase shares having a value not exceeding 25 percent of their compensation as of the beginning of the offering period up to a limit of $25,000 per annum. The ESPP qualifies as a non-compensatory plan under accounting guidance for share-based payments, and no compensation expense is recorded for ESPP purchases.

 

During 2013, employees purchased 39,526 shares at discounted prices of $38.69 and $42.19. Employees purchased 39,422 shares in 2012 at discounted prices of $33.01 and $37.89. As of December 31, 2013 and 2012, 817,754 and 857,280 shares, respectively, remained available for future issuance under the ESPP.

 

An income tax rate of 40 percent is used to estimate the tax effect on total share-based payments determined under the fair value-based method for all awards. The Company generally settles stock option exercises and fully vested RSUs and performance shares with either the issuance of new common shares or the issuance of common shares purchased in the open market.