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AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The intrinsic value for options exercised during 2011, 2010 and
2009 was $206 million, $130 million and $11 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 2011, 2010 and 2009 was $503 million, $619
million and $83 million, respectively. The tax benefit realized
from income tax deductions from stock option exercises, which
was recorded in additional paid-in capital, in 2011, 2010 and
2009 was $60 million, $35 million and $2 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 2011, 2010 and 2009, the majority of which were
granted in the beginning of each year:
2011 2010 2009
Dividend yield 1.6% 1.8% 4.1%
Expected volatility(a) 40% 41% 36%
Risk-free interest rate 2.3% 2.8% 2.1%
Expected life of stock option (in years)(b) 6.2 6.2 4.8
Weighted-average fair value per option $ 16.21 $ 14.11 $ 4.54
(a) The expected volatility is based on weighted historical and implied
volatilities of the Company’s common stock price.
(b) In 2011 and 2010, the expected life of stock options was determined using
historical data and expectations of option exercise behavior. In 2009, the
expected life of stock options was determined using 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. Both awards have a contractual term of 10 years and
a vesting period of 6 years.
The aggregate grant date fair value of options with
performance based conditions was approximately $33.8 million.
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 2011, 2010 and 2009.
The aggregate grant date fair value of options with market-
based conditions was approximately $10.5 million.
Compensation expense for these awards is recognized ratably
over the vesting period irrespective of the probability of the
market metric being achieved. Total compensation expense of
approximately $2.4 million was recorded in each of the years
2011, 2010 and 2009.
RESTRICTED STOCK AWARDS
RSAs are valued based on the stock price on the date of grant and
generally vest 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 2011, 2010 and 2009 was $221
million, $175 million and $44 million, respectively (based upon
the Company’s stock price at the vesting date).
The weighted-average grant date fair value of RSAs granted in
2011, 2010 and 2009, is $45.11, $38.63 and $18.04, respectively.
LIABILITY-BASED AWARDS
Certain employees are awarded PGs and other incentive awards
that can be settled with cash or equity shares at the Company’s
discretion and final Compensation and Benefits Committee
payout approval. These awards earn value based on performance
and service conditions and vest over periods of one to three
years.
PGs and other incentive awards 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 and service periods. Cash paid upon vesting of
these awards was $64 million, $64 million and $71 million in
2011, 2010 and 2009, respectively.
SUMMARY OF STOCK PLAN EXPENSE
The components of the Company’s total stock-based
compensation expense (net of cancellations) for the years ended
December 31 are as follows:
(Millions) 2011 2010 2009
Restricted stock awards(a) $ 176 $ 163 $ 135
Stock options(a) 40 58 55
Liability-based awards 83 64 38
Performance/market-based stock options 222
Total stock-based compensation expense(b) $ 301 $ 287 $ 230
(a) As of December 31, 2011, the total unrecognized compensation cost related
to unvested RSAs and options was $259 million and $39 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 both RSAs and options is 1.6 years.
(b) The total income tax benefit recognized in the Consolidated Statements of
Income for stock-based compensation arrangements for the years ended
December 31, 2011, 2010 and 2009 was $105 million, $100 million and $81
million, respectively.
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