American Express 2004 Annual Report Download - page 113

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per year beginning with the second anniversary of the
grant date.
In 1998, the Compensation and Benefits Committee
(CBC) adopted a restoration stock option program. This
program provided that employees who exercised options
that had been outstanding at least five years by surrender-
ing previously owned shares as payment would auto-
matically 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 was equal to
the number of shares surrendered plus any shares surren-
dered or withheld to satisfy the employees’ income tax
requirements. The term of the restoration option, which
was exercisable six months after grant, was equal to the
remaining life of the original option. In July 2003, the CBC
approved the discontinuance of granting a restoration
option upon the exercise of stock options granted on or
after January 1, 2004. In July 2004, the CBC further
approved the discontinuance of granting a restoration
option upon the exercise of all stock options effective
January 1, 2005.
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 2004, 2003 and 2002:
2004 2003 2002
Dividend yield 0.8% 1.0% 0.9%
Expected volatility 30% 34% 33%
Risk-free interest rate 2.9% 2.9% 4.3%
Expected life of stock
option (years) 4.2 4.5 4.5
Weighted average fair
value per option $13.27 $10.08 $11.68
The dividend yield reflects the assumption that the
current dividend payout will continue with no antici-
pated increases. The expected life of the options is
based on historical data and is not necessarily indica-
tive of exercise patterns that may occur.
A summary of the status of the Company’s stock option
plans as of December 31, 2004, 2003 and 2002 and
changes during each of the periods then ended is pre-
sented below:
(Shares in thousands) 2004 2003 2002
Shares
Weighted
Average
Exercise
Price Shares
Weighted
Average
Exercise
Price Shares
Weighted
Average
Exercise
Price
Outstanding at beginning of year 155,833 $ 37.92 166,232 $ 37.54 146,069 $ 37.42
Granted 14,930 $ 51.03 12,933 $ 35.01 40,430 $ 36.59
Exercised (35,310) $ 34.76 (13,943) $ 29.61 (7,934) $ 24.98
Forfeited/Expired (3,581) $ 41.13 (9,389) $ 40.43 (12,333) $ 40.93
Outstanding at end of year 131,872 $ 39.97 155,833 $ 37.92 166,232 $ 37.54
Options exercisable at end of year 89,358 $ 39.08 88,263 $ 36.58 61,903 $ 32.86
The following table summarizes information about the stock options outstanding at December 31, 2004:
(Shares in thousands) Options Outstanding Options Exercisable
Range of Exercise Prices
Number
Outstanding
Weighted Average
Remaining
Contractual Life
(Years)
Weighted Average
Exercise Price
Number
Exercisable
Weighted Average
Exercise Price
$11.33 – $29.99 11,951 2.8 $ 25.89 11,926 $ 25.88
$30.00 – $35.99 21,168 6.0 $ 34.41 13,891 $ 34.94
$36.00 – $42.99 32,085 6.7 $ 37.24 19,821 $ 37.29
$43.00 – $43.99 21,334 5.2 $ 43.66 21,206 $ 43.66
$44.00 – $49.99 29,536 6.0 $ 44.65 19,610 $ 44.67
$50.00 – $61.44 15,798 7.0 $ 51.75 2,904 $ 53.93
$11.33 – $61.44 131,872 5.9 $ 39.97 89,358 $ 39.08
AXP
AR.04
111
Notes to Consolidated Financial Statements