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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN EXPRESS COMPANY
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 contractual term of 10 years from the date of grant.
Stock options generally vest 25 percent per year beginning
with the first anniversary of the grant date.
The weighted-average remaining contractual life and the
aggregate intrinsic value (the amount by which the fair value
of the Company’s stock exceeds the exercise price of the
option) of the stock options outstanding, exercisable, and
vested and expected to vest as of December 31, 2009 were as
follows:
Outstanding Exercisable
Vested and
Expected to
Vest
Weighted average
remaining contractual
life (in years) 4.1 2.8 4.1
Aggregate intrinsic value
($ millions) $399 $199 $379
The intrinsic value for options exercised during 2009, 2008
and 2007 was $11 million, $79 million and $463 million,
respectively (based upon the fair value of the Company’s
stock price at the date of exercise). Cash received from the
exercise of stock options in 2009, 2008 and 2007 was $83
million, $176 million and $852 million, respectively. The tax
benefit realized from income tax deductions from stock
option exercises, which was recorded in additional paid-in
capital, in 2009, 2008 and 2007 was $2 million, $21 million
and $158 million, respectively.
The fair value of each option is estimated on the date of
grant using a Black-Scholes-Merton option-pricing model.
The following weighted-average assumptions are used for
grants issued in 2009, 2008 and 2007, the majority of which
were granted in the beginning of each year:
2009 2008 2007
Dividend yield 4.1% 1.5% 1.0%
Expected volatility 36% 19% 19%
Risk-free interest rate 2.1% 2.8% 4.8%
Expected life of stock option (in years) 4.8 4.7 4.7
Weighted-average fair value per option $4.54 $8.24 $13.39
The expected volatility is 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.
STOCK OPTIONS WITH PERFORMANCE-BASED AND
MARKET-BASED CONDITIONS
On November 30, 2007 and January 31, 2008, the Company’s
CEO was granted in the aggregate 2,750,000 of non-qualified
stock option awards with performance-based and market-
based conditions. The exercise prices per share are $58.98 and
$49.13, respectively. Both awards have a contractual term of
10 years and a vesting period of 6 years.
Performance-based Conditions
Awards for 2,062,500 options have performance-based
conditions with an aggregate grant date fair value of
approximately $33.8 million using a Black-Scholes-Merton
option-pricing model. Compensation expense for these
awards will be recognized over the vesting period when it is
determined it is probable that the performance metrics will be
achieved. No compensation expense for these awards was
recorded in 2009, 2008 or 2007.
Market-based Conditions
Awards for 687,500 options have market-based conditions
with an aggregate grant date fair value of approximately $10.5
million using a Monte Carlo valuation model. The expected
volatility is based on historical returns of the Company’s
common stock price and the S&P 500 Index. The expected life
of the options is based on historical data. Compensation
expense for the fair value of these awards is recognized ratably
over the vesting period irrespective of the probability of the
market metric being achieved. Total compensation expense
recorded in 2009, 2008 and 2007 was $2.4 million, $2.4
million and $0.1 million, respectively.
RESTRICTED STOCK AWARDS
RSAs are valued based on the stock price on the date of grant
and vest generally 25 percent per year, beginning with the first
anniversary of the grant date. RSA holders receive
non-forfeitable dividends or dividend equivalents. The total
fair value of shares vested during 2009, 2008 and 2007 was $44
million, $134 million and $203 million, respectively (based
upon the Company’s stock price at the vesting date).
The weighted-average grant date fair value of RSAs
granted in 2009, 2008 and 2007, is $18.04, $48.29 and $57.89,
respectively.
PORTFOLIO GRANTS
In 2009, the Company awarded cash-settled PGs to Executive
Officers that earn value based on the Company’s financial
performance and the Company’s total shareholder return
versus the S&P 500 Index. Awards in 2009 for all other PG
recipients earn value based on the Company’s performance
against financial and corporate objectives. The 2009 awards
vest fifty percent each year over two one-year performance
periods. All PGs awarded in 2008 and 2007 earn value based
on the Company’s financial performance and the Company’s
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