JP Morgan Chase 2003 Annual Report Download - page 97

J.P. Morgan Chase & Co. / 2003 Annual Report 95
The follow ing table details the distribution of broad-based employee stock options outstanding at December 31, 2003:
Options outstanding Options exercisable
(Options in thousands) Options Weighted-average Weighted-average remaining Options Weighted-average
Range of exercise prices outstanding exercise price contractual life (in years) exercisable exercise price
$10.26 – $20.00 5,317 $13.01 0.4 5,317 $ 13.01
$20.01 – $35.00 19,155 24.66 6.6 7,725 28.79
$35.01 – $50.00 71,048 41.16 6.3 23,354 38.76
$50.01 – $65.58 22,302 51.22 7.1 — —
Total 117,822 $39.11 6.2 36,396 $ 32.88
The follow ing table presents JPM organ Chase’s w eighted-average
grant-date fair values for the employee stock-based compensation
awards granted, and the assumptions used to value stock options
under a Black-Scholes valuation model:
Year ended December 31, 2003 2002 2001
Weight ed-average grant -dat e fair value
Stock options:
Key employee $5.60 $11.57 $ 18.39
Broad-based employee 4.98 9.49 14.60
Restricted stock and RSUs
(all payable solely in stock) 22.03 36.28 49.21
Weight ed-average annualized stock
opt ion valuat ion assum pt ions
Risk-free interest rate 3.19% 4.61% 5.08%
Expected dividend yield(a) 5.99 3.72 2.51
Expected common stock price volatility 44 39 37
Assum ed w eight ed-average expected
life of stock opt ions (in years)
Key employee 6.8 6.8 6.8
Broad-based employee 3.8 3.8 3.8
(a) Based primarily on historical data at the grant date.
Noninterest expense
Merger and restructuring costs
M erger and restructuring costs associated w ith various programs
announced prior to January 1, 2002, were reflected in the M erger
and restructuring costs caption of the Consolidated statement
of income and had been incurred as of December 31, 2002.
Additionally, all previously recorded liabilities for merger charges
had been fully utilized as of year-end 2002: $1.25 billion in con-
nection w ith the merger of J.P. M organ and Chase, and $300
million in connection w ith the right-sizing of employee levels
beyond that planned at the time of the merger.
Restructuring costs associated with programs announced after
January 1, 2002, are reflected in the related expense category of
Note 8
Comparison of the fair and
intrinsic value measurement methods
Pre-tax employee stock-based compensation expense related to
these plans totaled $919 million in 2003 (which includes the
$266 million impact of adopting SFAS 123), $590 million in
2002 and $798 million in 2001. Compensation expense for 2002
included the reversal of previously accrued expense of $120 mil-
lion related to forfeitable key employee awards granted in 1999,
2000 and 2001, as discussed above.
The follow ing table presents net income and basic and diluted
earnings per share as reported, and as if all outstanding awards
w ere accounted for at fair value. The low er expense from applying
SFAS 123 in 2003 compared w ith 2002 resulted from a decrease
in the number of outstanding stock-based compensation awards,
a low er common stock price, low er Black-Scholes option fair
values and longer vesting periods. The increase in compensation
expense after applying SFAS 123 in 2002 compared w ith 2001
reflects a higher level of options granted in prior years that w ere
not fully vested. This increase is partially offset by a decline in
the w eighted-average grant-date fair value of options granted
in 2002.
Year ended December 31,
(in millions, except per share data) 2003 2002 2001
Net income as reported $6,719 $1,663 $ 1,694
Add: Employee stock-based compensation
expense originally included
in reported net income, net of tax 551 354 479
Deduct: Employee stock-based
compensation expense determined
under the fair value method
for all awards, net of tax (863) (1,232) (1,101)
Pro Forma net income $6,407 $785 $ 1,072
Earnings per share:
Basic: As reported $3.32 $0.81 $ 0.83
Pro Forma 3.16 0.37 0.51
Diluted: As reported $3.24 $0.80 $ 0.80
Pro Forma 3.09 0.37 0.50