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AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20
STOCK PLANS
STOCK OPTION AND AWARD PROGRAMS
Under the 2007 Incentive Compensation Plan and previously under
the 1998 Incentive Compensation Plan, awards may be granted to
employees 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 awards or units (RSAs),
portfolio grants (PGs) or other incentives, and similar awards
designed to meet the requirements of non-U.S. jurisdictions.
For the Company’s Incentive Compensation Plans, there were a
total of 35 million, 36 million and 38 million common shares unissued
and available for grant as of December 31, 2013, 2012 and 2011,
respectively, as authorized by the Company’s Board of Directors and
shareholders.
The Company granted stock option awards to its Chief Executive
Officer (CEO) in November 2007 and January 2008 that have
performance-based and market-based conditions. These option
awards are separately disclosed and are excluded from the information
and tables presented in the following paragraphs.
A summary of stock option and RSA activity as of December 31, 2013,
and changes during the year is presented below:
Stock Options RSAs
(Shares in thousands) Shares
Weighted-
Average
Exercise
Price Shares
Weighted-
Average
Grant
Price
Outstanding as of December 31,
2012 31,861 $ 43.62 11,800 $ 40.31
Granted 463 61.76 3,867 60.13
Exercised/vested (13,672) 42.39 (5,559) 33.24
Forfeited (22) 39.25 (530) 50.31
Expired (15) 45.61 — —
Outstanding as of December 31,
2013 18,615 44.98 9,578 $ 51.88
Options vested and expected to
vest as of December 31, 2013 18,600 44.98 — —
Options exercisable as of
December 31, 2013 16,842 $ 44.51 — —
The Company recognizes the cost of employee stock awards granted in
exchange for employee services based on the grant-date fair value of
the award, net of expected forfeitures. Those costs are recognized
ratably over the vesting period.
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, 2013 are as follows:
Outstanding Exercisable
Vested and
Expected to
Vest
Weighted-average remaining
contractual life (in years) 4.4 4.0 4.4
Aggregate intrinsic value (millions) $ 852 $ 778 $ 851
The intrinsic value for options exercised during 2013, 2012 and 2011
was $374 million, $209 million and $206 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 2013,
2012 and 2011 was $580 million, $368 million and $503 million,
respectively. The tax benefit realized from income tax deductions from
stock option exercises, which was recorded in additional paid-in
capital, in 2013, 2012 and 2011 was $84 million, $45 million and $60
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 2013, 2012 and
2011, the majority of which were granted in the beginning of each
year:
2013 2012 2011
Dividend yield 1.4% 1.5% 1.6%
Expected volatility(a) 39% 41% 40%
Risk-free interest rate 1.3% 1.3% 2.3%
Expected life of stock option (in years)(b) 6.3 6.3 6.2
Weighted-average fair value per option $ 21.11 $ 17.48 $ 16.21
(a) The expected volatility is based on both weighted historical and implied
volatilities of the Company’s common stock price.
(b) In 2013, 2012 and 2011, 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 2013, 2012 and 2011.
97