JP Morgan Chase 2010 Annual Report Download - page 211

JPMorgan Chase & Co./2010 Annual Report 211
In connection with the Bear Stearns merger, 46 million Bear Stearns
employee stock awards, principally RSUs, capital appreciation plan
units and stock options, were exchanged for equivalent JPMorgan
Chase awards using the merger exchange ratio of 0.21753. The fair
value of these employee stock awards was included in the Bear
Stearns purchase price, since substantially all of the awards were
fully vested immediately after the merger date under provisions that
provided for accelerated vesting upon a change of control of Bear
Stearns. However, Bear Stearns vested employee stock options had
no impact on the purchase price; since the employee stock options
were significantly out of the money at the merger date, the fair
value of these awards was equal to zero upon their conversion into
JPMorgan Chase options.
The Firm also exchanged 6 million shares of its common stock for
27 million shares of Bear Stearns common stock held in an irrevo-
cable grantor trust (the “RSU Trust”), using the merger exchange
ratio of 0.21753. The RSU Trust was established to hold common
stock underlying awards granted to selected employees and key
executives under certain Bear Stearns employee stock plans. The
RSU Trust was consolidated on JPMorgan Chase’s Consolidated
Balance Sheets as of June 30, 2008, and the shares held in the RSU
Trust were recorded in “Shares held in RSU Trust,” which reduced
stockholders’ equity, similar to the treatment for treasury stock. The
related obligation to issue stock under these employee stock plans
is reported in capital surplus. The issuance of shares held in the
RSU Trust to employees has no effect on the Firm’s total stockhold-
ers’ equity, net income or earnings per share. Shares held in the
RSU Trust were distributed in 2008, 2009 and 2010, with a major-
ity of the shares in the RSU Trust having been distributed through
December 2010. There were 1 million shares in the RSU Trust as of
December 31, 2010. These remaining shares are expected to be
distributed over the next two years.
RSU activity
Compensation expense for RSUs is measured based on the number of shares granted multiplied by the stock price at the grant date and is recog-
nized in income as previously described. The following table summarizes JPMorgan Chase’s RSU activity for 2010.
Year ended
December 31, 2010
(in thousands, except weighted average data) Number of shares
Weighted
-
average
grant date fair value
Outstanding, January 1
221,265
$
29.32
Granted
80,142
42.9
2
Vested
(59,
137
)
43.05
Forfeited
(8,
149
)
31.15
Outstanding, D
e
cember 3
1
234,121 $ 30.45
The total fair value of shares that vested during the years ended December 31, 2010, 2009 and 2008, was $2.3 billion, $1.3 billion and
$1.6 billion, respectively.
Employee stock option and SARs activity
Compensation expense for employee stock options and SARs, which is measured at the grant date as the fair value of employee stock options
and SARs, is recognized in net income as described above.