American Express 2006 Annual Report Download - page 101

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notes to consolidated fi nancial statements
american express company
Given the depth of the Company’s business
relationships with Delta through the SkyMiles Credit
Card and Delta’s participation as a key partner in the
Company’s Membership Rewards program, in the event
Delta’s reorganization under the bankruptcy laws is not
successful or otherwise negatively impacts the Company’s
relationship with Delta, the Company’s future financial
results could be adversely impacted. American Express’
Delta SkyMiles Credit Card co-brand portfolio accounts
for less than 10 percent of the Company’s worldwide
billed business and less than 15 percent of worldwide
managed lending receivables.
NOTE 15 STOCK PLANS
STOCK OPTION AND AWARD PROGRAMS
Under the 1998 Incentive Compensation Plan, awards
may be granted to officers and other key individuals who
perform services for the Company and its participating
subsidiaries. These awards may be in the form of stock
options, restricted stock, portfolio grants and similar
awards designed to meet the requirements of non-U.S.
jurisdictions. The Company also has options that remain
outstanding pursuant to a Directors’ Stock Option Plan
that expired in 2003.
For these plans, there were a total of 66 million, 71
million, and 68 million common shares available for grant
at December 31, 2006, 2005, and 2004, respectively.
A summary of stock option and nonvested restricted
stock award activity as of December 31, 2006, and
changes during the year are presented below:
(Shares in thousands) Stock Options RSAs
Shares
Weighted
Average
Exercise
Price Shares
Weighted
Average
Grant
Price
Outstanding at
beginning of year 123,775 $35.75 8,978 $40.77
Granted 6,051 $51.87 3,406 $52.14
Exercised/vested (30,686) $33.89 (3,315) $38.75
Forfeited/expired (1,830) $46.84 (595) $43.99
Outstanding at
end of year 97,310 $37.60 8,474 $45.87
Options exercisable at
end of year 81,269 $35.99
STOCK OPTIONS
Each stock option has an exercise price equal to the
market price of the Company’s common stock on the date
of grant and a term of no more than 10 years. Vesting
provisions relating to stock options are as follows:
Grant Year Vesting Provisions
2003 and after Generally vest ratably at 25 percent per
year beginning with the first anniversary
of the grant date
Prior to 1999 and in
2002
Generally vest ratably at 33 1/3 percent
per year beginning with the first
anniversary of the grant date
2001–2000–1999 Generally vest ratably at 33 1/3 percent
per year beginning with the second
anniversary of the grant date
The weighted average remaining contractual life and
intrinsic value of the stock options outstanding and
excercisable as of December 31, 2006 are as follows:
Outstanding Exercisable
Aggregate intrinsic value
(millions) $2,245 $2,006
Weighted average contractual
remaining life (years) 4.6 3.9
The total intrinsic value of options exercised during
2006, 2005, and 2004 was $661 million, $455 million,
and $633 million, respectively.
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 2006, 2005, and 2004:
2006 2005 2004
Dividend yield 0.9% 0.9% 0.8%
Expected volatility 23% 24% 30%
Risk-free interest rate 4.3% 3.6% 2.9%
Expected life of
stock option (years) 4.6 4.5 4.2
Weighted average fair
value per option $12.76 $12.59 $13.27
The dividend yield reflects the assumption that the
cur rent dividend payout w il l cont inue w ith no a nt ic ipated
increases. The expected volatility was based on weighted
historical and implied volatilities of the Company’s
common stock price. The expected life of the options is
based on historical data and is not necessarily indicative
of exercise patterns that may occur.
As of December 31, 2006, the total unrecognized
compensation cost related to unvested options was $111
million. This cost is expected to be recognized over a
weighted-average period of 2.2 years.