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AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The intrinsic value for options exercised during 2012, 2011 and
2010 was $209 million, $206 million and $130 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 2012, 2011 and 2010 was $368 million, $503
million and $619 million, respectively. The tax benefit realized
from income tax deductions from stock option exercises, which
was recorded in additional paid-in capital, in 2012, 2011 and
2010 was $45 million, $60 million and $35 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 were used for grants
issued in 2012, 2011 and 2010, the majority of which were
granted in the beginning of each year:
2012 2011 2010
Dividend yield 1.5% 1.6% 1.8%
Expected volatility(a) 41% 40% 41%
Risk-free interest rate 1.3% 2.3% 2.8%
Expected life of stock option (in years)(b) 6.3 6.2 6.2
Weighted-average fair value per option $ 17.48 $ 16.21 $ 14.11
(a) The expected volatility is based on both weighted historical and implied
volatilities of the Company’s common stock price.
(b) In 2012, 2011 and 2010, the expected life of stock options was determined
using both historical data and expectations of option exercise behavior.
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 2012, 2011 and 2010.
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 $0.5 million was recorded in 2012 and
approximately $2.4 million was recorded in both 2011 and 2010.
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 2012, 2011 and 2010 was $296 million,
$221 million and $175 million, respectively (based upon the
Company’s stock price at the vesting date).
The weighted-average grant date fair value of RSAs granted in
2012, 2011 and 2010, is $49.80, $45.11 and $38.63, 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,
market and service conditions and vest over periods of one to
three years.
PGs and other incentive awards are generally settled with cash
and thus 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 vesting period. Cash paid
upon vesting of these awards in 2012, 2011 and 2010 was $66
million, $58 million and $64 million, respectively.
SUMMARY OF STOCK PLAN EXPENSE
The components of the Company’s total stock-based
compensation expense (net of forfeitures) for the years ended
December 31 are as follows:
(Millions) 2012 2011 2010
Restricted stock awards(a) $ 197 $ 176 $ 163
Stock options(a) 29 40 58
Liability-based awards 70 83 64
Performance/market-based stock options 122
Total stock-based compensation expense(b) $ 297 $ 301 $ 287
(a) As of December 31, 2012, the total unrecognized compensation cost related
to unvested RSAs and options of $237 million and $27 million, respectively,
will be recognized ratably over the weighted-average remaining vesting
period of 1.6 years and 1.4 years, respectively.
(b) The total income tax benefit recognized in the Consolidated Statements of
Income for stock-based compensation arrangements for the years ended
December 31, 2012, 2011 and 2010 was $107 million, $105 million and $100
million, respectively.
99