459 jpmorgan chase co in 1993 jpmorgan chase co jp

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Unformatted text preview: k options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized in the company's financial statements. Pro forma information is required by SFAS 123 as if the company had accounted for its employee stock options under the fair value method. So the company provides the information on the fair value of options granted in 2001 estimating the value of employee stock options at the date of grant and using the Black-Scholes option-pricing model. 78 For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting periods. Net income for the year 2001 after applying SFAS 123 amounted to 254 million U.S.dollars while the reported net income amounted to 1,291 million U.S.dollars. Intel Corporation emphasizes that the Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in the opinion of management, the existing models do not necessarily provide a reliable single measure of the fair value of employee stock options. 4.5.9 JPMorgan Chase & Co In 1993 JPMorgan Chase & Co (JP Morgan Chase) opposed the Exposure Draft “Accounting for Stock-Based Compensation” as not improving the quality and credibility of financial statements. However, the company started expensing employee stock options from January 2003. JPMorgan Chase accounts for its employee stock-based compensation plans under the intrinsic value based method in accordance with APB 25. There is no expense recognized for stock options, as they have no intrinsic value on the grant date. Following the requirements of SFAS 123, the company provides pro forma effects the stock options would have on the income statement had the employee stock-based compensation expense been recognized using the fair value based method (www.ar.jpmorganchase.com/ar2001/audited/n19.html). JPMorgan Chase stated that if the company had adopted the fair value based method pursuant to SFAS 123, options would be valued using the BlackScholes model. The higher impact from applying SFAS 123 in 2001 reflects the lower level of net income and increased options granted during 2001. The difference between net income as reported and after the impact of applying SFAS 123 is significant and amounted to 0,622 million USD. Under APB 25 net income amounted to 1,694 million USD, while if the company recorded stock-based compensation expense using the fair value based method, net income would be 1,072 million USD. JPMorgan Chase stated that it used weighted-average grant-date fair value and assumptions to value the options using the Black-Scholes model for equity awards granted. 79 JPMorgan Chase announced that the company is going to start to expense all stock options granted to employees beginning January 2003. This will have a somewhat larger impact on JPMorgan Chase than on some other firms because the company is one of the few companies that offer an options program to almost all employees. (www.jpmorganchase.com/cm/cs?pagename=phase/ Href&urlname=jpmc/about/facts/ceo_email). 4.5.10 BankAmerica Corporation In 1993 BankAmerica Corporation (BankAmerica) did not support the Exposure Draft “Accounting for Stock-Based Compensation”. The corporation still does not agree to expense employee stock options and applies the provisions of APB 25 in accounting for its employee stock option plans. In accordance with SFAS 123, the company provides disclosures as if the company had adopted the fair value based method of measuring outstanding employee stock options in 2001. The difference between reported net income and after the impact of applying SFAS 123 is significant and amounted to 0,351 million USD as of December 31, 2001. Under APB 25 net income amounted to 6,792 million USD, while if the company recorder stock-based compensation expense using the fair value based method net income would be 6,441 million USD (www.s1.mobular.net/ccbn/7/27/29/). For estimating the fair value of granted employee stock options on the grant date, the company used weighted-average grant-date fair value and assumptions to v alue t he o ptions u sing t he B lack-Scholes o ption p ricing m odel. Compensation expense under the fair value based method is recognised over the vesting period of the employee stock options. BankAmerica highlighted that the Black-Scholes option pricing model was developed to estimate the fair value of traded options, which have the different characteristics than employee stock options and changes to the subjective assumptions used in the model can result in materially different fair value estimates....
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This document was uploaded on 10/31/2013.

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