American Express 2009 Annual Report Download - page 115

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN EXPRESS COMPANY
total shareholder return versus the S&P 500 Index and cliff
vest after a three-year performance period. PG payouts are
subject to CBC approval.
The PGs are classified as liabilities and, therefore, the fair
value is determined at the date of grant and remeasured
quarterly as part of compensation expense over the
performance period. Cash paid upon vesting of PGs was $43
million, $59 million and $55 million in 2009, 2008 and 2007,
respectively.
SUMMARY OF STOCK PLAN EXPENSE
The components of the Company’s stock-based compensation
expense (net of cancellations) are as follows:
(Millions) 2009 2008 2007
Restricted stock awards(a) $135 $141 $135
Stock options(a) 55 73 78
Portfolio grants and other 10 21 63
Performance/market-based stock options 22—
Total stock based compensation expense(b) $202 $237 $276
(a) As of December 31, 2009, the total unrecognized compensation
cost related to unvested RSAs and options was $260 million and
$74 million, respectively. The unrecognized cost for RSAs and
options will be recognized ratably over the remaining vesting
period. The weighted-average remaining vesting period for RSAs
and options is 2.44 years and 2.01 years, respectively.
(b) The total income tax benefit recognized in the income statement
for stock-based compensation arrangements in 2009, 2008 and
2007 was $71 million, $83 million and $96 million, respectively.
NOTE 21
RETIREMENT PLANS
The Company sponsors defined benefit pension plans,
defined contribution plans, and other postretirement benefit
plans for its employees. The following table provides a
summary of the total cost related to these plans as of
December 31:
(Millions) 2009 2008 2007
Defined benefit pension plan cost $21 $13 $28
Defined contribution plan cost 118 211 173
Other postretirement benefit plan cost 29 27 31
Net periodic benefit cost $168 $251 $232
The expenses in the above table are recorded in salaries and
employee benefits in the Consolidated Statements of Income.
DEFINED BENEFIT PENSION PLANS
The Company’s significant defined benefit pension plans
cover certain employees in the United States and United
Kingdom. Most employees outside the United States and
United Kingdom are covered by local retirement plans, some
of which are funded, while other employees receive payments
at the time of retirement or termination under applicable
labor laws or agreements. The Company complies with the
minimum funding requirements in all countries.
The Company sponsors the U.S. American Express
Retirement Plan (the Plan) for eligible employees in the
United States. The Plan is a noncontributory defined benefit
plan and a tax-qualified retirement plan subject to the
Employee Retirement Income Security Act of 1974, as
amended (ERISA). Effective July 1, 2007, the Plan was closed
to new entrants and existing participants no longer accrue
future benefits. The Company funds retirement costs through
a trust and complies with the applicable minimum funding
requirements specified by ERISA, as revised under the
Pension Protection Act (PPA), effective October 1, 2008. The
funded status of the Plan on an ERISA basis as of October 1,
2009 (applicable plan year) is 106 percent. The PPA
calculation assumptions are specific to ERISA and differ from
the calculation of the net funded status for GAAP purposes
(see Net Funded Status as of December 31, 2009 in the table
below).
The Plan is a cash balance plan and employees’ accrued
benefits are based on notional account balances, which are
maintained for each individual. Employees’ balances are
credited daily with interest at a fixed-rate that is updated each
January 1 and is based on the average of the daily five-year
U.S. Treasury Note yields for the previous October 1 through
November 30. The interest rate varies from a minimum of 5
percent to a maximum equal to the lesser of (i) 10 percent or
(ii) the applicable interest rate set forth in the Plan.
Employees and their beneficiaries have the option to receive
annuity payments upon retirement or a lump-sum payout at
vested termination, death, disability or retirement.
The Company also sponsors an unfunded non-qualified
Supplemental Retirement Plan (the SRP) for employees
compensated above a certain level to supplement their
pension benefits that are limited by the Internal Revenue
Code. The SRP was also amended as of July 1, 2007, and its
terms generally parallel those of the Plan, except that the
definition of compensation and payment options differ.
For each plan, the net funded status is defined by GAAP
governing retirement benefits as the difference between the
fair value of plan assets and the respective plan’s projected
benefit obligation. The projected benefit obligation represents
a liability based on the plan participants’ service-to-date and
their expected future compensation at their projected
retirement date. Changes in the funded status are recorded as
unamortized gains and losses, which are recognized in other
comprehensive income, net of tax, in the periods in which
they occur along with prior service cost.
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