We grant stock options, restricted stock units (RSUs) and performance share units (PSUs) to employees under the 1990 Long-Term Incentive Plan as described in our current Proxy Statement. In addition, we grant options and RSUs in limited circumstances to consultants, advisors and independent contractors (primarily non-employee talent at NBC Universal) under a plan approved by our Board of Directors in 1997 (the consultants’ plan). There are outstanding grants under two separate shareowner approved option plans for non-employee directors; the last grant was made in 2002 and no further grants are expected to be made under these plans. Requirements for stock option shares may be met from either unissued or treasury shares. RSUs give the recipients the right to receive shares of our stock upon the lapse of their related restrictions. Restrictions on RSUs lapse in various increments and at various dates, beginning after three years from date of grant through grantee retirement. Although the plan permits us to issue RSUs settleable in cash, we have only issued RSUs settleable in shares of our stock. PSUs give recipients the right to receive shares of our stock upon the achievement of certain performance targets.
We measure the total cost of each stock option grant at the date of grant using a market-based option trading model. We recognize the cost of each stock option, RSU and PSU on a straight-line basis over its vesting period.
Stock options expire 10 years from the date they are granted and vest over service periods that range from one to five years.
All grants of GE options under all plans must be approved by the Management Development and Compensation Committee, which comprises entirely outside directors.
STOCK OPTION ACTIVITY
| Average per share | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| (Shares in thousands) | Shares subject to option | Exercise price | Market price | ||||||
| Balance at December 31, 2001 | 354,453 | $ | 25.08 | $ | 40.08 | ||||
| Options granted | 46,928 | 27.37 | 27.37 | ||||||
| Options exercised | (29,146 | ) | 9.45 | 31.86 | |||||
| Options terminated | (10,177 | ) | 38.14 | (a) | |||||
| Balance at December 31, 2002 | 362,058 | 26.26 | 24.35 | ||||||
| Options granted | 8,261 | 31.19 | 31.19 | ||||||
| Options exercised | (43,829 | ) | 9.45 | 27.59 | |||||
| Options terminated | (10,643 | ) | 38.98 | (a) | |||||
| Balance at December 31, 2003 | 315,847 | 28.30 | 30.98 | ||||||
| Options granted(b) | 27,141 | 32.26 | 32.26 | ||||||
| Options exercised | (43,110 | ) | 10.54 | 32.68 | |||||
| Options terminated | (13,409 | ) | 36.91 | (a) | |||||
| Balance at December 31, 2004 | 286,469 | $ | 30.94 | $ | 36.50 | ||||
| (a) | Not applicable. |
| (b) | Included approximately 3.5 million options that replaced canceled SARs and have identical terms. |
STOCK COMPENSATION PLANS
| December 31, 2004 (Shares in thousands) | Securities to be issued upon exercise | Weighted average exercise price | Securities available for future issuance | ||||||
|---|---|---|---|---|---|---|---|---|---|
| APPROVED BY SHAREOWNERS | |||||||||
| Options | 285,152 | $ | 30.97 | (a) | |||||
| RSUs | 30,715 | (b) | (a) | ||||||
| PSUs | 700 | (b) | (a) | ||||||
| NOT APPROVED BY SHAREOWNERS | |||||||||
| Options | 1,317 | 24.64 | (c) | ||||||
| RSUs | 3,036 | (b) | (c) | ||||||
| Total(d) | 320,920 | $ | 30.94 | 130,385 | |||||
| (a) | Under the 1990 Long-Term Incentive Plan, 0.95% of issued common stock (including treasury shares) as of the first day of each calendar year during which the Plan is in effect becomes available for awards in that calendar year. Total shares available for future issuance under the 1990 Long-Term Incentive Plan amounted to 105.9 million shares. |
| (b) | Not applicable. |
| (c) | Total shares available for future issuance under the consultants’ plan amount to 24.5 million shares. |
| (d) | In connection with various acquisitions, there are an additional 1.8 million options outstanding, with a weighted average exercise price of $19.98. |
Outstanding options expire on various dates through December 9, 2014.
The following table summarizes information about stock options outstanding at December 31, 2004.
STOCK OPTIONS OUTSTANDING
| (Shares in thousands) | Outstanding | Exercisable | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Exercise price range | Shares | Average life(a) |
Average exercise price | Shares | Average exercise price | |||||||||||
| $ 7.83–14.73 | 52,457 | 1.1 | $ | 12.11 | 52,457 | $ | 12.11 | |||||||||
| 15.83–27.05 | 76,738 | 5.4 | 25.59 | 54,171 | 24.99 | |||||||||||
| 27.20–35.48 | 52,494 | 8.4 | 33.05 | 12,494 | 34.06 | |||||||||||
| 35.79–42.33 | 56,127 | 4.8 | 39.48 | 55,482 | 39.50 | |||||||||||
| 43.17–57.31 | 48,653 | 6.3 | 47.56 | 29,045 | 47.56 | |||||||||||
| Total | 286,469 | 5.2 | $ | 30.94 | 203,649 | $ | 29.40 | |||||||||
| At year-end 2003, options with an average exercise price of $24.63 were exercisable on 214 million shares; at year-end 2002, options with an average exercise price of $18.75 were exercisable on 214 million shares. | |
| (a) | Average contractual life remaining in years. |
OPTION VALUE INFORMATION(a)
| 2004 | 2003 | 2002 | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Fair value per option (in dollars)(b) | $ | 8.33 | $ | 9.44 | $ | 7.73 | |||
| Valuation assumptions | |||||||||
| Expected option term (in years) | 6.0 | 6.0 | 6.0 | ||||||
| Expected volatility | 27.7 | % | 34.7 | % | 33.7 | % | |||
| Expected dividend yield | 2.5 | 2.5 | 2.7 | ||||||
| Risk-free interest rate | 4.0 | 3.5 | 3.5 | ||||||
| (a) | Weighted averages of option grants during each period. |
| (b) | Estimated using Black-Scholes option pricing model. |
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