JP Morgan Chase 2005 Annual Report Download - page 104

Download and view the complete annual report

Please find page 104 of the 2005 JP Morgan Chase annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 144

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144

Notes to consolidated financial statements
JPMorgan Chase & Co.
102 JPMorgan Chase & Co. /2005 Annual Report
The following table details the distribution of broad-based employee stock options and SARs outstanding at December 31, 2005:
Options/SARs outstanding Options/SARs exercisable
(Options/SARs in thousands) Weighted-average Weighted-average remaining Weighted-average
Range of exercise prices Outstanding exercise price contractual life (in years) Exercisable exercise price
$ 20.01–$35.00 15,200 $ 25.01 4.3 10,490 $ 26.42
$ 35.01–$50.00 70,088 41.18 4.5 41,990 43.72
$ 50.01–$51.22 20,294 51.22 5.1 112 51.22
Total 105,582 $ 40.78 4.6 52,592 $ 40.29
Comparison of the fair and intrinsic value measurement methods
Pre-tax employee stock-based compensation expense related to the LTI plans
totaled $1.6 billion in 2005, $1.3 billion in 2004 and $919 million in 2003.
The following table presents net income (after-tax) and basic and diluted
earnings per share as reported, and as if all outstanding awards were
accounted for at fair value:
Year ended December 31,(a)
(in millions, except per share data) 2005 2004 2003
Net income as reported $ 8,483 $ 4,466 $ 6,719
Add: Employee stock-based
compensation expense
originally included in
reported net income 938 778 551
Deduct: Employee stock-based
compensation expense
determined under the fair
value method for all awards (1,015) (960) (863)
Pro forma net income $ 8,406 $ 4,284 $ 6,407
Earnings per share:
Basic: As reported $ 2.43 $ 1.59 $ 3.32
Pro forma 2.40 1.52 3.16
Diluted: As reported $ 2.38 $ 1.55 $ 3.24
Pro forma 2.36 1.48 3.09
(a) 2004 results include six months of awards for the combined Firm’s results and six months of
heritage JPMorgan Chase results. 2003 reflects the results of heritage JPMorgan Chase only.
The following table presents a summary of JPMorgan Chase’s broad-based employee stock option plans and SAR activity during the past three years:
Year ended December 31, 2005 2004 2003
Number of Weighted-average Number of Weighted-average Number of Weighted-average
(Options/SARs in thousands) options/SARs exercise price options/SARs exercise price options exercise price
Outstanding, January 1 112,184 $ 40.42 117,822 $ 39.11 113,155 $ 40.62
Granted ——6,321 39.96 12,846 21.87
Exercised (2,000) 24.10 (5,960) 15.26 (2,007) 13.67
Canceled (4,602) 39.27 (5,999) 39.18 (6,172) 37.80
Outstanding, December 31 105,582 $ 40.78 112,184 $ 40.42 117,822 $ 39.11
Exercisable, December 31 52,592 $ 40.29 30,082 $ 36.33 36,396 $ 32.88
The following table presents JPMorgan Chase’s weighted-average,
grant-date fair values for the employee stock-based compensation awards
granted, and the assumptions used to value stock options and SARs under
the Black-Scholes valuation model:
Year ended December 31,(a) 2005 2004 2003
Weighted-average grant-date fair value
Stock options:
Key employee $ 10.44 $ 13.04 $ 5.60
Broad-based employee NA 10.71 4.98
Converted Bank One options NA 14.05 NA
Restricted stock and RSUs
(all payable solely in stock) 37.35 39.58 22.03
Weighted-average annualized
stock option valuation assumptions
Risk-free interest rate 4.25% 3.44% 3.19%
Expected dividend yield(b) 3.79 3.59 5.99
Expected common stock price volatility 37 41 44
Assumed weighted-average expected
life of stock options (in years)
Key employee 6.8 6.8 6.8
Broad-based employee NA 3.8 3.8
(a) 2004 results include six months of the combined Firm’s results and six months of heritage
JPMorgan Chase results. 2003 reflects the results of heritage JPMorgan Chase only.
(b) Based primarily upon historical data at the grant dates.