JP Morgan Chase 2009 Annual Report Download - page 234

Notes to consolidated financial statements
JPMorgan Chase & Co./2009 Annual Report
232
the exact number of shares and warrants purchased is subject to
various factors, including: market conditions; legal considerations
affecting the amount and timing of repurchase activity; the Firm’s
capital position, taking into account goodwill and intangibles; internal
capital generation; and alternative potential investment opportunities.
The repurchase program does not include specific price targets or
timetables; may be executed through open market purchases or
privately negotiated transactions, or utilizing Rule 10b5-1 programs;
and may be suspended at any time. A Rule 10b5-1 repurchase plan
allows the Firm to repurchase its equity during periods when it would
not otherwise be repurchasing common stock – for example, during
internal trading “black-out periods.” All purchases under a Rule
10b5-1 plan must be made according to a predefined plan that is
established when the Firm is not aware of material nonpublic
information.
As of December 31, 2009, approximately 582 million unissued
shares of common stock were reserved for issuance under various
employee incentive, compensation, option and stock purchase
plans, director compensation plans, and the Warrants issued under
the Capital Purchase Program as discussed above.
Note 25 – Earnings per share
Effective January 1, 2009, the Firm implemented new FASB guid-
ance for participating securities, which clarifies that unvested stock-
based compensation awards containing nonforfeitable rights to
dividends or dividend equivalents (collectively, “dividends”) are
participating securities and should be included in the earnings per
share (“EPS”) calculation using the two-class method. JPMorgan
Chase grants restricted stock and RSUs to certain employees under
its stock-based compensation programs, which entitle the recipients
to receive nonforfeitable dividends during the vesting period on a
basis equivalent to the dividends paid to holders of common stock;
these unvested awards meet the definition of participating securi-
ties. Under the two-class method, all earnings (distributed and
undistributed) are allocated to each class of common stock and
participating securities, based on their respective rights to receive
dividends. EPS data for the prior periods were revised as required
by the FASB’s guidance.
The following table presents the calculation of basic and diluted
EPS for the years ended December 31, 2009, 2008 and 2007.
Year ended December 31,
(in millions, except per share
amounts) 2009 2008 2007
Basic earnings per share
Income before extraordinary gain $ 11,652 $ 3,699 $ 15,365
Extraordinary gain 76 1,906 —
Net income 11,728 5,605 15,365
Less: Preferred stock dividends 1,327 674 —
Less: Accelerated amortization from
redemption of preferred stock
issued to the U.S. Treasury 1,112(e) — —
Net income applicable to common
equity 9,289 4,931 15,365
Less: Dividends and undistributed
earnings allocated to participating
securities 515 189 441
Net income applicable to common
stockholders(a) 8,774 4,742 14,924
Total weighted-average basic shares
outstanding 3,862.8 3,501.1 3,403.6
Per share
Income before extraordinary gain $ 2.25 $ 0.81 $ 4.38
Extraordinary gain 0.02 0.54 —
Net income(b) $ 2.27(e) $ 1.35 $ 4.38
Year ended December 31,
(in millions, except per share
amounts) 2009 2008
2007
Diluted earnings per share
Net income applicable to common
equity $ 9,289 $ 4,931
$ 15,365
Less: Dividends and undistributed
earnings allocated to participat-
ing securities 515 189 438
Net income applicable to common
stockholders(a) 8,774 4,742
14,927
Total weighted-average basic
shares outstanding 3,862.8 3,501.1
3,403.6
Add: Employee stock options, SARs
and Warrants(c) 16.9 20.7 41.7
Total weighted-average diluted
shares outstanding(d) 3,879.7 3,521.8
3,445.3
Per share
Income before extraordinary gain $ 2.24 $ 0.81 $ 4.33
Extraordinary gain 0.02 0.54 —
Net income per share(b) $ 2.26(e) $ 1.35 $ 4.33
(a) Net income applicable to common stockholders for diluted and basic EPS may
differ under the two-class method as a result of adding common stock equivalents
for options, SARs and warrants to dilutive shares outstanding, which alters the
ratio used to allocate earnings to common stockholders and participating securi-
ties for purposes of calculating diluted EPS.
(b) EPS data has been revised to reflect the retrospective application of new FASB
guidance for participating securities, which resulted in a reduction of basic and
diluted EPS for the year ended December 31, 2009, of $0.13 and $0.05, respec-
tively; for the year ended December 31, 2008, of $0.06 and $0.02, respectively;
and for the year ended December 31, 2007, of $0.13 and $0.05, respectively.
(c) Excluded from the computation of diluted EPS (due to the antidilutive effect) were
options issued under employee benefit plans and, for 2008, the Warrant issued
under the U.S. Treasury’s Capital Purchase Program to purchase shares of the
Firm’s common stock totaling 266 million, 209 million and 129 million for the
years ended December 31, 2009, 2008 and 2007, respectively.
(d) Participating securities were included in the calculation of diluted EPS using the
two-class method, as this computation was more dilutive than the calculation us-
ing the treasury-stock method.
(e) The calculation of basic and diluted EPS for the year ended December 31,
2009, includes a one-time noncash reduction of $1.1 billion, or $0.27 per
share, resulting from the redemption of the Series K Preferred Stock issued to
the U.S. Treasury.