American Express 2002 Annual Report Download - page 77

I75 AXP INOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14 STOCK PLANS
Under the 1998 Incentive Compensation Plan and previously under the 1989 Long-Term Incentive Plan (the Plans), awards may
be granted to officers, other key employees and other key individuals who perform services for the company and its participat-
ing subsidiaries. These awards may be in the form of stock options, stock appreciation rights, restricted stock, performance
grants and similar awards designed to meet the requirements of non-U.S. jurisdictions. The company also has options outstand-
ing pursuant to a Directors’ Stock Option Plan. Under these plans, there were a total of 85 million, 48 million and 88 million
common shares available for grant at December 31, 2002, 2001 and 2000, respectively. Each option has an exercise price at
least equal to the market price of the company’s common stock on the date of grant and a maximum term of 10 years. Options
granted prior to 1999 and in 2002 generally vest at 331⁄3percent per year beginning with the first anniversary of the grant date.
Options granted in 1999, 2000 and 2001 generally vest at 331⁄3percent per year beginning with the second anniversary of the
grant date. The company also sponsors the American Express Incentive Savings Plan, under which purchases of the company’s
common shares are made by or on behalf of participating U.S. employees.
In 1998, the Compensation and Benefits Committee adopted a restoration stock option program. This program provides that
employees who exercise options that have been outstanding at least five years by surrendering previously owned shares as
payment will automatically receive a new (restoration) stock option with an exercise price equal to the market price on the
date of exercise. The size of the restoration option is equal to the number of shares surrendered plus any shares surrendered
or withheld to satisfy the employees’ income tax requirements. The term of the restoration option, which is exercisable six
months after grant, is equal to the remaining life of the original option. Senior officers must be in compliance with their stock
ownership guidelines to exercise restoration options.
The fair value of each option is estimated on the date of grant using a Black-Scholes option-pricing model with the following
weighted average assumptions used for grants in 2002, 2001 and 2000:
2002 2001 2000
Dividend yield 0.9% 0.8% 1.1%
Expected volatility 33% 31% 29%
Risk-free interest rate 4.3% 4.9% 6.7%
Expected life of stock option 4.5 years 5.0 years 5.0 years
The dividend yield reflects the assumption that the current dividend payout will continue with no anticipated increases. The
expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur.
The weighted average fair value per option was $11.68, $14.69 and $14.92 for options granted during 2002, 2001 and 2000,
respectively.
A summary of the status of the company’s stock option plans as of December 31 and changes during each of the years then
ended is presented below:
(Shares in thousands) 2002 2001 2000
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
Outstanding at beginning of year 146,069 $ 37.42 114,460 $ 34.23 94,512 $ 27.96
Granted 40,430 $ 36.59 42,883 $ 44.21 39,273 $ 44.38
Exercised (7,934) $ 24.98 (5,649) $ 20.83 (14,114) $ 19.45
Forfeited/expired (12,333) $ 40.93 (5,625) $ 40.64 (5,211) $ 36.87
Outstanding at end of year 166,232 $ 37.54 146,069 $ 37.42 114,460 $ 34.23
Options exercisable at end of year 61,903 $ 32.86 49,428 $ 29.08 33,966 $ 23.61