Ameriprise 2006 Annual Report Download - page 90

peer group of companies and the limited trading experience of
the Company’s shares. The risk free interest rate for periods
within the expected option life is based on the U.S. Treasury yield
curve in effect at the grant date. The expected life of the option is
based on experience while the Company was a part of American
Express and subsequent experience after the Distribution.
The weighted average grant date fair value for options granted
during 2006 and 2005 was $12.08 and $9.61, respectively.
The weighted average grant date fair value of American
Express options granted to the Company’s employees in 2005
and 2004 was $12.59 and $13.27, respectively, using a
Black-Scholes option-pricing model with the assumptions
determined by American Express. The Company has compared
the pre-distribution fair value of the American Express options
as of September 30, 2005 to the post-distribution fair value of
the substituted options under the 2005 ICP using the
Company’s stock volatility and other applicable assumptions
and determined there was no incremental value associated
with the substituted awards. Therefore, the grant date fair
values as determined while the Company was a part of
American Express will be expensed over the remaining vesting
periods for those substituted options.
A summary of the Company’s stock option activity is presented
below (shares and intrinsic value in millions):
Weighted
Weighted Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
Shares Price Term (Years) Value
Outstanding at
January 1, 2006 11.3 $ 31.60
Granted 2.8 43.78
Exercised (0.7) 26.11
Forfeited (0.6) 32.31
Outstanding at
December 31, 2006 12.8 34.34 8.1 $ 258
Exercisable at
December 31, 2006 2.9 30.88 7.6 68
The intrinsic value of a stock option is the amount by which the
fair value of the underlying stock exceeds the exercise price of
the option. The total intrinsic value of options exercised was
$16 million during the year ended December 31, 2006. No
options granted under the 2005 ICP were exercised in 2005.
Restricted Stock Awards
Restricted stock awards granted under the 2005 ICP generally
vest ratably at 25% per year over four years or at the end of
five years. The Plan provides for accelerated vesting of
restricted stock awards based on age and length of service.
Compensation expense for restricted stock awards is based
on the market price of Ameriprise Financial stock on the date
of grant and is amortized on a straight-line basis over the
vesting period. Quarterly dividends are paid on restricted
stock, as declared by the Company’s Board of Directors, during
the vesting period and are not subject to forfeiture.
Certain advisors receive a portion of their compensation in the
form of restricted stock awards which are subject to forfeiture
based on future service requirements. The Company provides
a match of these restricted stock awards equal to one half of
the restricted stock awards earned.
A summary of the Company’s restricted stock award activity is
presented below (shares in millions):
Weighted
Average
Grant Date
Shares Fair Value
Non-vested shares at January 1, 2006 3.7 $ 31.09
Granted 1.4 44.53
Vested (1.1) 29.43
Forfeited (0.3) 35.05
Non-vested shares at December 31, 2006 3.7 36.50
The fair value of restricted stock vesting during the year ended
December 31, 2006 was $51 million.
Restricted Stock Units
In 2005, the Company awarded bonuses to advisors under an
advisor and incentive bonus program. The bonuses were
converted to 2.0 million share-based awards under the 2005
ICP effective as of the vesting date of January 1, 2006. These
awards will be issued in three annual installments beginning in
2006 in the form of Ameriprise Financial common stock.
Separation costs of $82 million were recognized during the
year ended December 31, 2005 for these bonuses. The
number of restricted stock units granted was based on the
Transition and Opportunity bonus (“T&O Bonus”) earned.
Advisors do not have the rights of shareholders with respect to
the restricted stock units held until the shares are settled for
common stock. Quarterly dividend equivalent payments are
made on restricted stock units during the vesting period and
are not subject to forfeiture.
The 2005 ICP provides for the grant of deferred share units to
non-employee directors of the Company. The director awards
are fully vested upon issuance. The deferred share units are
settled for Ameriprise Financial common stock upon the
director’s termination of service.
There were 1.4 million restricted stock units outstanding and
vested as of December 31, 2006.
Deferred Equity Program for Independent Financial
Advisors
The Deferred Equity Program for Independent Financial Advisors
(“P2 Deferral Plan”), adopted as of September 30, 2005,
gives certain advisors the option to defer a portion of their
compensation in the form of share-based awards, which are
subject to forfeiture based on future service requirements. The
Company provides a match of the share-based awards. The P2
Deferral Plan allows for the grant of share-based awards of
up to 2.5 million shares of common stock.
88 Ameriprise Financial, Inc. 2006 Annual Report