Ameriprise 2007 Annual Report Download - page 89

Ameriprise Financial 2007 Annual Report 87
and $35 million, respectively, for tax benefits related to the American
Express awards that vested on or before December 31, 2005.
The components of the Company’s share-based compensation
expense, net of forfeitures, were as follows:
Years Ended December 31,
2007 2006 2005
(in millions)
Stock options $ 37 $ 35 $22
Restricted stock awards 51 46 33
Restricted stock units(1) 55 32 —
Total $ 143 $113 $55
(1) Includes expense related to restricted stock units awarded under the 2005 ICP,
including the Deferred Compensation Plan, and units awarded under the P2
Deferral Plan.
For the years ended December 31, 2007, 2006, and 2005, the total
income tax benefit recognized by the Company related to the share-
based compensation expense was $50 million, $39 million and
$19 million, respectively.
As of December 31, 2007, there was $174 million of total unrecog-
nized compensation cost related to non-vested awards under the
Company’s share-based compensation plans. That cost is expected to
be recognized over a weighted-average period of 2.4 years.
Amended and Restated Ameriprise Financial
2005 Incentive Compensation Plan
The 2005 ICP, which was amended and approved by shareholders on
April 25, 2007, provides for the grant of cash and equity incentive
awards to directors, employees and independent contractors, including
stock options, restricted stock awards, restricted stock units, stock appre-
ciation rights, performance shares and similar awards designed to
comply with the applicable federal regulations and laws of jurisdiction.
Under the 2005 ICP, a maximum of 37.9 million shares may be issued.
Of this total, no more than 4.4 million shares may be issued in the
future for full value awards, which are awards other than stock options
and stock appreciation rights. Shares issued under the 2005 ICP may be
authorized and unissued shares or treasury shares.
Stock Options
Stock options granted have an exercise price not less than 100% of the
current fair market value of a share of common stock on the grant date
and a maximum term of 10 years. Stock options granted generally vest
ratably over three to four years. The 2005 ICP provides for accelerated
vesting of option awards based on age and length of service. Stock
options granted are expensed on a straight-line basis over the option
vesting period based on the estimated fair value of the awards on the
date of grant using a Black-Scholes option-pricing model.
The following weighted average assumptions were used for stock
option grants in 2007, 2006 and 2005:
2007 2006 2005
Dividend yield 1.0% 1.0% 1.0%
Expected volatility 20% 27% 27%
Risk-free interest rate 4.7% 4.5% 4.3%
Expected life of stock option (years) 4.5 4.5 4.5
The dividend yield assumption assumes the Company’s average
dividend payout would continue with no changes. The expected
volatility for grants in 2007 was based on historical volatilities experi-
enced by a peer group of companies, the Company’s implied volatility
and the Company’s historical stock volatility for the 12 most recent
months. The expected volatility for grants in 2006 and 2005 was
based on historical and implied volatilities experienced by a peer
group of companies and the limited trading experience of the
Company’s shares in those years. 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
2007, 2006 and 2005 was $13.69, $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 was $12.59
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 substi-
tuted 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. There-
fore, 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, 2007 12.8 $34.34
Granted 2.1 58.83
Exercised (1.3) 28.40
Forfeited (0.4) 40.03
Outstanding at
December 31, 2007 13.2 $38.62 7.5 $217
Exercisable at
December 31, 2007 5.3 $32.83 6.9 $119
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 $43 million and
$16 million during the years ended December 31, 2007 and 2006,
respectively. No options granted under the 2005 ICP were exercised
in 2005.
Restricted Stock Awards
Restricted stock awards generally vest ratably over three to four years or
at the end of five years. The 2005 ICP provides for accelerated vesting
of restricted stock awards based on age and length of service. Compen-
sation 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