UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

FORM 10-K

⌧ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2006

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______to ______

Commission File No. 1-7657 Company (Exact name of registrant as specified in its charter)

New York 13-4922250 (State or other jurisdiction of incorporation or (I.R.S. Employer organization) Identification No.)

World Financial Center New York, New York 10285 (Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (212) 640-2000

Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange Title of each class on which registered Common Shares (par value $0.20 per Share) New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes √ No ___

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ___ No √ √

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes √ No ___

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ___ √

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act. Large accelerated filer √ Accelerated filer ___ Non-accelerated filer ___

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ___ No √ √

As of June 30, 2006, the aggregate market value of the registrant’s voting shares held by non-affiliates of the registrant was approximately $63.0 billion based on the closing sale price as reported on the New York Stock Exchange.

As of February 22, 2007, there were 1,192,339,538 common shares of the registrant outstanding.

Documents Incorporated By Reference Parts I, II and IV: Portions of Registrant’s 2006 Annual Report to Shareholders. Part III: Portions of Registrant’s Proxy Statement to be filed with the Securities and Exchange Commission in connection with the Annual Meeting of Shareholders to be held on April 23, 2007.

TABLE OF CONTENTS

Form 10-K Item Number

PART I 1. Business ...... 1 Introduction...... 1 Global Network & Merchant Services...... 4 U.S. Card Services ...... 15 International Card & Global Commercial Services ...... 27 Corporate & Other ...... 37 Foreign Operations...... 40 Segment Information and Classes of Similar Services ...... 41 Executive Officers of the Company...... 41 Employees...... 42 1A. Risk Factors...... 43 1B. Unresolved Staff Comments ...... 52 2. Properties...... 52 3. Legal Proceedings...... 53 4. Submission of Matters to a Vote of Security Holders...... 60

PART II 5. Market for Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ...... 61 6. Selected Financial Data...... 62 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation...... 63 7A. Quantitative and Qualitative Disclosures about Market Risk ...... 63 8. Financial Statements and Supplementary Data...... 63 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...... 63 9A. Controls and Procedures ...... 63 9B. Other Information...... 64

PART III 10. Directors, Executive Officers and Corporate Governance...... 64 11. Executive Compensation...... 64 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...... 64 13. Certain Relationships and Related Transactions, and Director Independence...... 64 14. Principal Accounting Fees and Services ...... 65

PART IV 15. Exhibits and Financial Statement Schedules...... 65 Signatures...... 66 Index to Financial Statements...... F-1 Exhibit Index...... E-1

PART I∗ ITEM 1. BUSINESS

INTRODUCTION

Overview

American Express Company, together with its consolidated subsidiaries (“American Express,” the “Company,” “we,” “us” or “our”), is a leading global payments, network and travel company that offers its products and services throughout the world. We were founded in 1850 as a joint stock association. We were incorporated in 1965 as a New York corporation.

Our headquarters are located in New York, New York in lower Manhattan. We also have offices in other locations in North America, as well as throughout the world.

We have three reportable operating segments: Global Network & Merchant Services, U.S. Card Services and International Card & Global Commercial Services, and a Corporate & Other section, which we describe below.

Securities Exchange Act Reports and Additional Information

We maintain an Investor Relations Web site on the Internet at http://ir.americanexpress.com. We make available free of charge, on or through this Web site, our annual, quarterly and current reports and any amendments to those reports as soon as reasonably practicable following the time they are electronically filed with or furnished to the Securities and Exchange Commission (“SEC”). To these, just click on the “SEC Filings” link under the caption “Financial Information & Filings” found on our Investor Relations homepage.

You can also access our Investor Relations Web site through our main Web site at www.americanexpress.com by clicking on the “About American Express” link, which is located at the bottom of our homepage. Information contained on our Investor Relations Web site and our main Web site is not incorporated by reference into this report or any other report filed with or furnished to the SEC.

∗ Some of the statements in this report constitute forward-looking statements. You can identify forward-looking statements by words such as “believe,” “expect,” “anticipate,” “optimistic,” “intend,” “plan,” “aim,” “will,” “may,” “should,” “could,” “would,” “likely,” “estimate,” “predict,” “potential,” “continue” or other similar expressions. We discuss certain factors that affect our business and operations and factors that may cause our actual results to differ materially from these forward-looking statements under “Item 1A. Risk Factors” below. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We undertake no obligation to update publicly or revise any forward-looking statements.

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2006 Highlights

During 2006, American Express continued its strong performance of recent years. Compared with 2005, we delivered:

• net revenues of $27.1 billion, up 13% from $24.1 billion; • income from continuing operations of $3.7 billion, up 16 % from $3.2 billion; • net income of $3.7 billion, which was essentially level with year-ago results (reflects the inclusion of nine months of earnings of , Inc., which we spun off to shareholders on September 30, 2005); • diluted earnings per share based on income from continuing operations of $3.01, up 18% from $2.56; • diluted earnings per share based on net income of $2.99, up 1% from $2.97; and • return on average equity of 34.7%, compared with 25.4%.

These results met or exceeded our on-average and over-time financial targets of earnings per share growth of 12% to 15%, revenue growth of at least 8% and return on equity of 33% to 36%.

For a complete discussion of our 2006 financial results, including financial information regarding each of our reportable operating segments, see pages 30-111 of the Company’s 2006 Annual Report to Shareholders, which are incorporated herein by reference. For a summary of the Company and our reportable operating segments, and a discussion of our principal sources of revenue, see pages 30-32 and pages 74-76, respectively, of the 2006 Annual Report to Shareholders.

Products and Services

We provide a variety of products and services worldwide, including, among others:

• global card network services; • travel and business expense management • merchant acquisition and merchant products and services; processing for our network partners • business travel and travel management and proprietary payments services; businesses; • consumer travel services; • charge cards and credit cards for • point-of-sale and back-office products and consumers and businesses services and marketing programs for worldwide; merchants; • consumer and small business • international banking products; and lending products; • magazine publishing. • American Express® Travelers Cheques and Gift Cards;

In certain countries we have granted licenses to partially-owned affiliates and unaffiliated entities to offer some of these products and services.

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The Company’s various products and services are sold globally to diverse customer groups, including consumers, small businesses, mid-market companies, large corporations, and banking institutions. These products and services are sold through various channels including direct mail, online, targeted sales forces and direct response advertising.

Our general purpose card network, card issuing and merchant acquiring and processing businesses are global in scope. We are a world leader in providing charge and credit cards to consumers, small businesses and corporations. These cards, which include cards issued by American Express as well as cards issued by third-party banks and other institutions that are accepted on the American Express network (collectively, “Cards”), are currently issued in over 40 currencies. Our Cards permit Cardmembers to charge purchases of goods and services in most countries around the world at the millions of merchants that accept cards bearing our logo. We added a net total of 7.0 million Cards in 2006, bringing total worldwide Cards-in-force to 78.0 million (including Cards issued by third parties). In 2006, our worldwide billed business (spending on American Express® Cards, including Cards issued by third parties) was $561.5 billion.

Spend-Centric Model is Competitive Advantage

We believe that our “spend-centric” business model (which focuses on generating revenues primarily by driving spending on our Cards and secondarily by finance charges and fees) has significant competitive advantages. Average spending per Cardmember, which is substantially higher than for our competitors, represents greater value to merchants in the form of loyal customers and higher sales. This gives us the ability to earn a premium discount rate and invest in greater value-added services for merchants and Cardmembers. As a result of the higher revenues generated from higher spending, we have the flexibility to offer more attractive rewards and other incentives to Cardmembers, which in turn create an incentive for them to spend more on their Cards. This business model, along with our closed loop network, in which we are both the card issuer and the merchant acquirer, gives us a competitive advantage that we seek to leverage to provide more value to Cardmembers, merchants and Card issuing partners.

Our business as a whole has not experienced significant seasonal fluctuations, although travel sales tend to be highest in the second quarter; Travelers Cheque sales and Travelers Cheques outstanding tend to be greatest each year in the summer months, peaking in the third quarter, and Card billed business tends to be moderately higher in the fourth quarter than in other quarters.

The American Express Brand

Our brand and its attributes — trust, security, integrity, quality and customer service — are key assets of the Company. We continue to focus on our brand by educating employees about these attributes and by incorporating them into our programs, products and services. Our brand has been rated one of the most valuable brands in the world in various surveys, and we believe it provides us with a significant competitive advantage. We believe our brand and its attributes are critical to our success, and we invest heavily in managing, marketing and promoting it. (We account for our expenses in managing our brand, advertising and related

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campaigns in the Global Network & Merchant Services segment discussed below.) In addition, we place significant importance on , servicemarks and patents, and diligently protect our intellectual property rights around the world.

GLOBAL NETWORK & MERCHANT SERVICES

Global Network Services

We operate a global general purpose charge and network through our Global Network Services (“GNS”) business. Network functions include operations, service delivery, systems, authorization, clearing, settlement and brand advertising and marketing; the development of new and innovative products for the network; and establishing and enhancing relationships with merchants globally.

Since May 1996, we have been pursuing a strategy of inviting U.S. banks and other institutions to issue Cards on the American Express network, building on a business strategy we have implemented successfully in a number of countries outside the , where we have many banks and other financial institutions issuing Cards on the American Express network. By leveraging our global infrastructure and the appeal of the American Express brand, we aim to broaden our Cardmember and merchant base for our network worldwide. Our GNS business has established more than 105 card issuing or merchant acquiring arrangements with banks and other institutions in 120 countries.

A key asset of our network is the American Express brand, which is one of the world’s most highly recognized and respected brands.

Cards bearing our logo are issued by our principal operating subsidiary, American Express Travel Related Services Company, Inc. (“TRS”), and certain of its subsidiaries and also by third-party institutions, and are accepted at all merchant locations worldwide that accept American Express-branded Cards. In addition, depending on the product, Cards bearing our logo are generally accepted at ATM locations worldwide that accept Cards. TRS and its subsidiaries issue the vast majority of Cards on our network.

GNS focuses on partnering with qualified third-party banks and other financial institutions that choose to issue Cards accepted on our global network. Although we customize our network arrangements to the particular market and our partner’s requirements, as well as to our strategic plans in that marketplace, all GNS arrangements are designed to help issuers develop products for their highest-spending and most affluent customers and to support the value of American Express Card acceptance to merchants. We choose to partner with institutions who share a core set of attributes such as commitment to high quality standards, strong marketing expertise and compatibility with the American Express brand, and we require adherence to our product, brand and service standards.*

Our GNS arrangements fall into three main categories.

* The use of the term “partner” or “partnering” does not mean or imply a formal legal partnership.

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The first type of GNS arrangement is known as an independent operator (“IO”) arrangement. As of the end of 2006, we had 55 of these arrangements around the world. We pursue these arrangements to expand the presence of the American Express network throughout the world, in markets in which we do not offer a proprietary local currency card. Under this type of arrangement, the partner’s local presence and relationships help us enhance the impact of our brand in the market, reach merchant coverage goals more quickly, and operate at economic scale and cost levels that would be difficult for us to achieve on our own. We license our bank partner to issue local currency Cards in their market, including the classic Green, Gold and Platinum American Express Cards. In addition, the majority of these partners serve as the merchant acquirer and processor for local merchants. American Express retains the relationship with multi-national merchants. Our IO partner owns the customer relationships and credit risk for the Cards it issues, and makes the decisions about which customers will be issued Cards. GNS generates revenues in IO arrangements from fees paid by the IO partner derived from the number of Cards it issues, the level of Cardmember spending on those Cards, royalties and the total charge volume at merchants with which the IO partner has an agreement to accept Cards. Our IO partner is responsible for transaction authorization, billing and pricing, Cardmember servicing and funding Card receivables for its Cards.

Examples of countries where we have entered into IO arrangements include Ecuador, Greece, , Pakistan, Croatia, Peru, Portugal and Vietnam. In 2006, we sold our proprietary card issuing and related businesses in , Malaysia and Indonesia to Global Network Services IO partners Banco Bradesco S.A., Maybank and Bank Danamon, respectively. Through our partnerships with these leading financial institutions, we believe we can accelerate growth in Cardmember spending, Cards-in-force and merchant acceptance in these countries.

The second type of GNS arrangement is known as a network card license (“NCL”) (which we formerly referred to as a non-proprietary license). At the end of 2006, we had 48 of these arrangements in place. We pursue these arrangements to increase our brand presence and gain market share in markets in which we have a proprietary Card issuing business, and in a few cases those in which we also have IO partners. In an NCL arrangement, we grant the third-party financial institution a license to issue American Express-branded Cards. The NCL issuer owns the customer relationships for all Cards it issues, provides customer service to its Cardmembers, transaction authorization, billing and credit management, and is responsible for the marketing of the Cards, and designs the Card product features (including rewards and other incentives for Card holders), subject to meeting certain standards. We operate the merchant network, route and process Card transactions from the merchant’s point-of-sale through submission to the issuer, and settle with issuers. The NCL is the type of arrangement that we have implemented with banks in the United States.

Examples of NCL arrangements include our relationships with Citibank (South Dakota), N.A. and Bank of America in the United States, Lloyds TSB Bank in the and Westpac Banking Corporation in .

GNS’ revenues in NCL arrangements are related to a variety of factors, including the level of Cardmember spending, royalties and fees charged to the Card issuer based on charge volume, and our provision of value-added services such as Cardmember insurance products and

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other Card features and benefits for the issuer’s Cards. As indicated above, the NCL issuer bears the credit risk for the issued Cards, as well as the Card marketing and acquisition costs, Cardmember fraud risks and costs of rewards and other loyalty initiatives. We bear the risk arising from the GNS partner’s potential failure to meet its settlement obligations to us. We mitigate this risk by partnering with issuers that we believe are financially sound and will meet their obligations, and by monitoring their financial health, their compliance with the terms of their relationship with us and the political and economic environment in which they operate. In addition, we generally require NCL issuers to post a letter of credit, bank guarantee or other collateral to reduce this risk.

The third type of GNS arrangement is a joint venture. We have utilized this type of arrangement in , and several other countries. In these markets, TRS joins with a third party to establish a separate business in which TRS has a significant ownership stake. The joint venture typically signs new merchants to the American Express network and issues local currency Cards that carry our logo. In a joint venture arrangement, the joint venture assumes the Cardmember credit risk and bears the operating and marketing costs. The economics of the joint venture are similar to our proprietary Card issuing business, which we discuss below under “U.S. Card Services,” and we receive a portion of the joint venture’s income depending on the level of our ownership interest.

Gross revenues we receive per dollar spent on a Card issued by a GNS partner are lower than those from our proprietary card issuing business. However, because the GNS partner is responsible for most of the operating costs and risk of its card issuing business, our expenses are lower than those in our proprietary card issuing business. The GNS business model generates an attractive earnings stream and risk profile that requires a lower level of capital support. The return on equity in our GNS business can thus be significantly higher than that of our proprietary card issuing business. Because the majority of GNS costs are fixed, the GNS business is highly scalable. GNS partners benefit from their association with the American Express brand and their ability to gain attractive revenue streams and expand and differentiate their product offerings with innovative marketing programs.

In 2006, GNS signed 11 new partners to issue Cards on the American Express network. GNS partners launched over 125 new products during 2006, bringing the total number of American Express-branded GNS partner products to approximately 550. Outside the United States, we have signed a number of agreements over the past year in markets such as Brazil, Indonesia, Malaysia and Turkey.

Some of the highlights of our GNS business outside the United States in 2006 include:

• Launch of the Virgin Atlantic American Express Credit Card in conjunction with Virgin Atlantic and MBNA Europe Bank; • Launch of the dual currency ICBC Corporate American Express Card and the ICBC Petrol American Express Card with Industrial and Commercial Bank of China and PetroChina Company Limited; • Launch of the SAA Voyager Credit Card in partnership with Nedbank and South African Airways; and

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• Launch of the Korean Air American Express Card, the first American Express- branded airline cobrand card in Korea, in conjunction with Samsung Card and Korean Air.

In contrast to the situation outside the United States, where banks and other qualified institutions have issued Cards on our network for many years, until 2004 no major U.S. banks had issued Cards in the United States on the American Express global network. This situation was the result of rules and policies of Visa U.S.A. and Visa International Service Association (together, “VISA”) and MasterCard, Incorporated and MasterCard International, Inc. (together, “MasterCard”) in the United States, which mandated expulsion of members that issued American Express-branded Cards. No bank was willing to risk forfeiting membership in VISA and/or MasterCard (collectively, the “ associations”) to issue cards on our network.

However, as a consequence of the decision in a lawsuit filed in October 1998 by the U.S. Department of Justice against VISA and MasterCard in which such rules and policies were found to violate the U.S. antitrust laws, these rules and policies were finally repealed in late 2004 after the U.S. Supreme Court declined to hear VISA’s and MasterCard’s appeal of the lower courts’ rulings against them. The Supreme Court’s decision not to hear the appeals marked the end of VISA’s and MasterCard’s rules that prevented their member banks from issuing cards on competitive networks and cleared the way for implementation of the trial court’s order requiring the repeal of the illegal rules. We view this decision as a major victory for U.S. consumers as well as U.S. banks because it opened the door to more vigorous network competition and more innovative card products and services.

For American Express, the conclusion of the litigation brought by the Justice Department meant that we were now able to open our network to other card issuers in the United States, just as we have done internationally. Building a network business in the United States that operates in addition to our proprietary card business provides us with new and substantial opportunities for growth. We have acted on this decision by entering into several GNS arrangements with financial institutions in the United States, which have all launched products in the marketplace. These companies include MBNA, Bank of America, Citibank (South Dakota), N.A., HSBC Bank Nevada N.A., Barclays, which issues Cards to U.S. wealth management clients of UBS Financial Services Inc., and USAA Federal Savings Bank. In addition, we have a GNS arrangement with GE Money under which GE Money Bank issues Cards accepted on our network, the first of which is the Dillard’s American Express Card.

In November 2004, we filed a lawsuit against VISA, MasterCard and certain of their member banks seeking monetary damages resulting from the illegal rules that were struck down in the U.S. Department of Justice lawsuit discussed above. (You can read more about this lawsuit in the “Legal Proceedings” section of this report below.)

With approximately 550 different Card products launched on our network so far by our bank partners, GNS is an increasingly important business that is strengthening our brand visibility around the world, driving more transaction volume onto our merchant network and increasing the number of merchants accepting the American Express Card. GNS enables us to expand our global presence without having to invest large amounts of resources, as our GNS

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partners already have established attractive customer bases they can target with American Express-branded products. Since 1999, Cards-in-force issued by GNS partners have grown at a compound annual growth rate of 27%, and totaled 15 million Cards at the end of 2006. Outside the United States, approximately 50% of new Cards issued in 2006 were Cards issued by one of our GNS partners. Spending on these Cards has grown at a compound annual rate of 25% since 1999, and totaled $35.4 billion in 2006.

With the increase in electronic transmission of credit card transaction data over merchants’ point-of-sale systems, the necessity for merchants and merchant processors to secure this data against accidental or intentional compromise using a standard protocol that applies to all card types, became clear to American Express and the other major card networks. In 2006, in order to strengthen the security practices of merchants and payment processing firms and to secure payment account data in a globally consistent manner, we and Discover Financial Services, JCB, MasterCard Worldwide and Visa International formed PCI Security Standards Council, LLC (“PCI Co.”), an independent standards-setting organization to manage the ongoing evolution of the Payment Card Industry (PCI) Data Security Standard, which focuses on improving payment card account security throughout the transaction process. By establishing PCI Co. to manage the PCI Data Security Standard, we and the other founders have developed a common standard that is more accessible and efficient for participants in the payment card industry. All merchants and service providers that store, process and transmit payment card data are required to comply with the PCI Data Security Standard. PCI Co. is dedicated to driving greater education, awareness and adoption of the PCI Data Security Standard to ensure that all stakeholders involved in the payment process conduct their business responsibly.

Regulation

Local regulations governing the issuance of charge and credit cards have not been a significant factor impacting our arrangements with banks and qualifying financial institutions in any country in which such arrangements exist, because such banks and institutions generally are already licensed to issue general purpose cards. Accordingly, our GNS partners have generally not had difficulty in obtaining appropriate government authorization in the markets in which we have chosen to enter into GNS arrangements. As a network service provider to regulated U.S. banks, our GNS business is subject to review by certain federal bank regulators, including the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the Office of Thrift Supervision. As the operator of a general purpose card network, we are also subject to the USA PATRIOT Act of 2001 (the “Patriot Act”), which requires us to conduct due diligence on our GNS partners to ensure that they maintain sufficient anti-money laundering and “know your customer” programs to prevent our network from being used for money laundering or terrorist financing.

Global Merchant Services

We operate a global merchant services business, which includes signing merchants to accept Cards, and accepting and processing Card transactions and paying merchants that accept Cards for purchases made by Cardmembers with Cards (“Charges”). We also provide point-of-

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sale and back-office products and services and marketing programs to merchants, leveraging the capabilities provided by our closed loop structure.

Our objective is for Cardmembers to be able to use the Card wherever and however they desire, as well as to increase merchant coverage in key geographic areas and in selected new industries that have not traditionally accepted general purpose credit and charge cards as a means of payment. We add new merchants to our network through a number of sales channels: a proprietary sales force, third-party sales agents, strategic alliances with banks, the Internet, telemarketing and inbound “Want to Honor” calls (i.e., merchants desiring to accept the Card contacting us directly).

Since the early 1990s, we have significantly expanded the number of merchants that accept our Card products as well as the kinds of businesses that accept the Card. In recent years, we have focused our efforts on increasing the use of our Cards for everyday spending. In 1990, 64% of our U.S. billings came from the travel and entertainment sectors and 36% came from retail and other sectors. That proportion has now been more than reversed. In 2006, U.S. non- travel and entertainment billings represented over 65% of the U.S. billed business on American Express Cards. This shift resulted from the growth, over time, in the types of merchants that began to accept charge and credit cards in response to consumers’ increased desire to use these cards for more of their purchases, and our focus on expanding Card acceptance to meet Cardmembers’ needs.

During 2006, we continued our efforts to encourage consumers to use the Card for everyday spending. We increased the number and types of merchants in retail and everyday spending categories that accept the Card, such as quick-serve restaurants, mass transit, healthcare and recurring billing merchants.

In addition, we also continued our drive of bringing Card acceptance to industries where cash or checks are the predominant form of payment. For example, in the area of real estate, we signed an agreement with The Moinian Group to allow down-payments for luxury condominiums to be charged on the American Express Card. Card acceptance for private jets and residence/destination clubs, as well as business-to-business purchases, are other examples of new industries in which the Card is now accepted, and which have the potential to increase our average Cardmember spending.

Globally, acceptance of general purpose charge and credit cards continues to increase, including among merchants in industries that have not traditionally accepted charge and credit cards. As in prior years, during 2006, we continued to grow merchant acceptance of Cards around the world and to refine our approach to calculating merchant coverage in accordance with changes in the marketplace. Management estimates that, as of the end of 2006, our merchant network in the United States accommodated more than 90% of Cardmembers’ general purpose charge and credit card spending, and our international merchant network as a whole accommodated approximately 80% of our Cardmembers’ general purpose charge and credit card spending. These percentages are based on comparing our Cardmembers’ spending on our network currently with our estimate of what our Cardmembers would spend on our network if all merchants that accept general purpose credit and charge cards accepted American Express Cards.

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We earn “discount” revenue from fees charged to merchants for accepting Cards as payment for goods or services sold. The merchant discount is the fee charged to the merchant for accepting Cards and is generally expressed as a percentage of the amount charged on a Card. The merchant discount is generally deducted from the amount of the payment that the “merchant acquirer” (in most cases, TRS or one of its subsidiaries) pays to a merchant for Charges submitted. A merchant acquirer is the entity that contracts for Card acceptance with the merchant, accepts transactions from the merchant, pays the merchant for these transactions and submits the transactions through the American Express network to the appropriate Card issuer for billing to the Cardmember. When a Cardmember presents the Card for payment, the merchant creates a record of charge for the transaction and submits it to the merchant acquirer for payment. To the extent that TRS or one of its subsidiaries is the merchant acquirer, the merchant discount is recorded by us as discount revenue at the point-of-sale.

Where we act as the merchant acquirer and the Card presented at a merchant is issued by a third-party bank or financial institution, such as in the case of our GNS partners, we will make financial settlement to the merchant and receive the discount revenue. In our role as the operator of the Card network, we will also receive financial settlement from the Card issuer, who retains an issuer rate (i.e., the individually negotiated amount that Card issuers receive for transactions charged on our network with Cards that they issue, which is usually expressed as a percentage of the charged amount). The difference between the discount revenue (received by us in the form of the merchant discount) and the issuer rate received by the Card issuer generates a return to us. Where we are the Card issuer and the merchant acquirer is a third-party bank or financial institution (which can be the case in a country in which the IO is the local merchant acquirer), we receive an issuer rate in our settlement with the merchant acquirer, which is recorded by us as discount revenue.

The following diagrams depict the relationships among the parties in a point-of-sale transaction effected on the American Express network where we act as both the Card issuer and merchant acquirer (the “3-Party Model”) and under an NCL arrangement where third-party financial institutions in the United States act as Card issuers (the “NCL Model”):

‘3-Party Model’ Card Network Card Issuers Merchant Card Network, Card Issuer, Acquirer/Processor

Merchant Acquirer & Processor + Card Issuers Bank A

+ Card Issuers Bank B + “NCL Model” Card Issuers Bank C Closed-Loop

Network American American Express Express American American Cardmembers Merchants Express Express Merchants Cardmembers

The merchant discount rate that we charge is principally determined by the value we deliver to the merchant and generally represents a premium over other networks. We deliver greater value to the merchant through higher spending Cardmembers relative to cards issued on competing card networks, the overall higher volume of spending by all Cardmembers, marketing

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expertise, and Cardmembers’ insistence on using their Cards when enrolled in rewards or other Card loyalty programs, including those as part of our Corporate Card program.

The merchant discount rate varies with the industry in which the merchant does business, the Charge volume, the timing and method of payment to the merchant, the method of submission of Charges and, in certain instances, the geographic scope of the Card acceptance agreement signed with us (local or global) and the Charge amount. In 2006, as in prior years, we experienced some reduction in our global weighted average merchant discount rate, principally reflecting the impact of selective repricing initiatives, continued changes in the mix of business and volume-related pricing adjustments. We expect that the effect of these factors will likely continue to result in some erosion over time of the weighted average merchant discount rate, particularly outside the United States.

While most merchants understand our merchant discount rate pricing in relation to the value provided, we do encounter a relatively small number of merchants that accept our Cards, but tell their customers that they prefer to accept another type of payment and, consequently, suppress use of the Card. We respond to this issue aggressively to ensure that our Cardmembers are able to use their Card where and when they want to. We have made progress by: concentrating on acquiring merchants where Cardmembers want to use the Card; continuing to enhance the value we provide by programs such as American Express Selects® and My WishList, which enable merchants to gain valuable exposure and additional sales by providing exclusive offers and experiences to American Express Cardmembers; providing better and earlier communication of our value proposition; and, when necessary, cancelling merchants who suppress the use of our Card products.

In the case of My WishList, a seasonal Web site we developed in conjunction with merchant partners, we are able to greatly enhance our merchant value. Through the site, we provide Cardmembers with opportunities to buy a limited number of sought-after items, such as automobiles, trips, electronics and jewelry, at a fraction of their retail prices, as well as access to numerous offers from top brands. Through American Express Selects, we make available to our Cardmembers high quality shopping, dining and travel values from merchants all over the world, and these merchants have an opportunity to reach out to our Cardmembers.

Merchant satisfaction is a key goal of our Global Merchant Services business. We focus on understanding and addressing factors that influence merchant satisfaction, including developing and executing innovative programs that increase Card usage at merchants, using technology resources, our closed loop and deep marketing expertise and strengthening our relationships with merchants through an expanding roster of services that help them meet their business goals. We offer a full range of point-of-sale solutions, including integrated point-of- sale terminals and direct links that allow merchants to accept American Express Cards, as well as bankcards, debit cards and checks, and contactless point-of-sale terminals that enable merchants to accept products including our ExpressPay from American Express® products. Virtually all proprietary point-of-sale solutions support direct processing (i.e., direct connectivity) to American Express, which lowers a merchant’s cost of Card acceptance and avoids payment delays caused by a third party.

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ExpressPay, a contactless payment feature, is designed to be a fast, easy-to-use alternative for making everyday purchases at merchants where speed and convenience is important. ExpressPay is now accepted at over 30,000 places in the United States, including top quick-service restaurant, movie theater, drug store and convenience store chains. ExpressPay, powered by radio-frequency technology, is available both in a key-fob form and has been introduced within several Card products. In 2006, we expanded merchant coverage of ExpressPay by partnering with organizations like the Utah Transit Authority, Jack in the Box, and Arby’s Restaurant Group, Inc. at participating locations.

We continue to focus our efforts on the fast-growing recurring billing industry through Automatic Bill Payment, a service that allows merchants to bill Cardmembers on a regular basis for recurring charges such as insurance premiums, newspaper subscriptions, health club memberships, commutation costs and cable television service. We have also made modifications to our host authorization system to approve more transactions and reduce Cardmember inconvenience at the point-of-sale without a corresponding increase in fraud or credit losses.

Wherever we manage both the acquiring relationship with merchants and the Card issuing side of the business, there is a “closed loop,” which distinguishes our network from the bankcard networks in that there is access to information at both ends of the Card transaction. We maintain a direct relationship with both our Cardmembers and our merchants, and we handle all key aspects of those relationships. Our relationships allow us to analyze information on Cardmembers’ spend. This enables us to provide targeted marketing for merchants and special offers to Cardmembers through a variety of channels, subject to compliance with our privacy policy and legal requirements. We protect the confidentiality of this data, and comply with strict privacy, firewall and applicable legal requirements.

We work closely with our Card issuing bank partners to maintain key elements of this closed loop, which permits them to customize marketing efforts, deliver greater value to their Cardmembers and help us to direct increased business to merchants who accept the Card.

As the merchant acquirer, we have certain contingent liabilities that arise if a billing between a Cardmember and a merchant is settled in favor of the Cardmember. Drivers of this liability are returns in the normal course of business, disputes over fraudulent charges, the quality or non-delivery of goods and services and billing errors. Typically, we offset the amount due to the Cardmember against payments for the merchant’s current or future Charge submissions. We can realize losses when offsetting submissions cease, such as when the merchant commences a bankruptcy proceeding or goes out of business. We actively monitor our merchant base to assess the risk of this exposure. When appropriate, we will take action to reduce the net exposure to a given merchant by requiring a parent company guarantee or letter of credit, holding cash reserves funded through Charge payable holdbacks from a merchant, lengthening the time between when the merchant submits a Charge for payment and when we pay the merchant or implementing other appropriate risk management tools. We also establish reserves on our balance sheet for these contingencies.

In some markets outside the United States, particularly in the United Kingdom, third- party processors and some bankcard acquirers have begun to offer merchants the capability of

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converting credit card transactions from the local currency to the currency of the cardholder’s residence (i.e., the cardholder’s billing currency) at the point-of-sale, and submitting the transaction in the cardholder’s billing currency, thus bypassing the traditional foreign currency conversion process of the card network. This practice is known as “dynamic currency conversion.” If a merchant utilizes a dynamic currency conversion process, the merchant and processor share any fee assessed or spread earned for converting the transaction at the point of sale, thus reducing or eliminating revenue for card issuers and card networks relating to the conversion of foreign charges to the cardholder’s billing currency. This practice is not widespread, and it is uncertain to what extent consumers will prefer to have foreign currency transactions converted by merchants in this way. Our policy generally requires merchants to submit Charges and be paid in the currency of the country in which the transaction occurs, and we convert the transaction to the Cardmember’s billing currency.

Competition

Our network competes with other charge and credit card networks, including, among others, VISA, MasterCard, Diners Club (which, in the United States and , has been folded into the network operated by MasterCard), Discover, a business unit of Morgan Stanley (primarily in the United States), and JCB Co., Ltd. (primarily in Asia). We are the third largest general purpose charge and credit card network based on charge volume, behind VISA and MasterCard, which are larger than we are in most markets.

The principal competitive factors that affect the network and merchant service business include:

• the number of Cards-in-force and amount of spending on these Cards; • the quantity and quality of the establishments where the Cards can be used; • the economic attractiveness to card issuers and merchant acquirers of participating in the network; • the success of marketing and promotional campaigns; • reputation and brand recognition; • innovation in systems, technology and product offerings; • the quality of customer service; • the security of Cardmember and merchant information; and • cost of Card acceptance relative to the value provided.

Another aspect of network competition is the recent emergence and rapid growth of alternative payment mechanisms and systems, which include aggregators (such as PayPal), wireless payment technologies (including using mobile telephone networks to carry out transactions), pre-paid systems and systems linked to credit cards, and bank transfer models. In the United States, a "credit push" payment mechanism is being developed to re-direct online customers to payment systems based on ACH (automated clearing house, i.e., inter-bank transfer), and existing debit networks are making efforts to develop online PIN functionality, which could potentially reduce the relative use of charge and credit cards online.

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Some of our competitors have attempted to replicate our closed loop structure, such as VISA’s Visa Incentive Network. Although it remains to be seen how effective VISA will be, efforts by VISA and other card networks and payment providers to replicate the closed loop speak both to its continued value, as well as the intense competitive environment in which we operate.

Regulation

In recent years, regulators in several countries have focused on the fees involved in the operation of card networks, including the fees merchants are charged to accept cards. Regulators in the United Kingdom, Poland, , , the European Union, Australia, and Switzerland, among others, have conducted, and are continuing to conduct, investigations into the way bankcard network members collectively set the “interchange,” which is the fee paid by the bankcard merchant acquirer to the card issuing bank. The is generally the largest component of the merchant discount rate charged to merchants by the merchant acquirer for bankcard debit and credit charges. Although the regulators’ focus has primarily been on VISA and MasterCard as the dominant card networks, antitrust actions and government regulation of the bankcard associations’ pricing could ultimately affect all networks. Downward movement of interchange and merchant discount fees may affect the relative economic attractiveness to card issuers and merchant acquirers of participation in a particular network. Lower interchange and/or merchant discount revenue may lead card issuers to look for other sources of revenue such as annual card fees, as well as to reduce costs by scaling back or eliminating rewards programs. In certain countries where antitrust actions or regulations have forced our competitors to lower their fees, we have made adjustments to our own fee arrangements with merchants to reflect local competitive trends. For example, reductions in bankcard interchange mandated by the Reserve Bank of Australia reforms in 2003 have resulted in lower merchant discount rates for VISA and MasterCard. As a result of changes in the marketplace, we have reduced our own merchant discount rates in Australia although we have nevertheless been able to increase billed business and the number of merchants accepting our Cards. In addition, under legislation enacted in , a merchant acquirer is required to charge the same merchant discount rate to all merchants in the same industry category, and merchant discount rates cannot exceed 3%.

In its Final Report on the retail banking sector issued in January 2007, which included review of the payment cards industry, including interchange fees, the European Commission appears to favor competition law enforcement tools, rather than regulating price levels, as the preferred means to address perceived issues of insufficient competition in the European payment cards industry. The conclusions of the European Commission as expressed in its Final Report do not have the force of law, but may be used as the basis for future legislation or regulation in the European Union countries. In 2007, as an example, the competition regulator in Poland found insufficient basis for VISA and MasterCard interchange fees and ordered the associations to stop their current interchange setting practices, and the banks are appealing that decision.

In the United States, the Board of Governors of the Federal Reserve System and various Federal Reserve Banks have been following developments on interchange and have held several conferences focused on credit card interchange rates. While the Federal Reserve has expressed

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interest in monitoring this issue, it has not indicated the need to regulate interchange rates in the United States. In Congress, there have been several hearings on Visa/MasterCard interchange over the last year. During 2006, there were also a number of bills proposed in individual state legislatures seeking to impose caps on credit card interchange or to prohibit card companies from charging merchant discount on the state tax portion of credit card purchases. None of those bills was enacted. It is expected that Congressional hearings and similar proposed state legislation will continue during 2007. In the event that governmental or regulatory activity to limit interchange continues or increases, our revenues and profitability could be adversely affected.

Regulators, including most recently the European Commission, have considered the industry practice of prohibiting merchants from passing the cost of merchant discount fees along to consumers through surcharges on card purchases. Although some countries, such as the United Kingdom, have for a number of years permitted merchants to levy a surcharge on credit card purchases, provided that surcharges were clearly disclosed, there has to date been a relatively low overall incidence of surcharging, as merchants do not want to risk offending customers or losing them to competitors that do not assess surcharges for credit card purchases. In its Final Report, the European Commission indicated that prohibiting surcharging appeared to restrict inter-network competition and may constitute a barrier to entry for alternative, non-cash payment instruments. In Australia, we have seen selective merchant surcharging in certain industries such as telecommunications and, in some cases, on a basis that is greater than applied to the bankcard networks.

The European Commission will likely be enacting a new legislative directive that will put in place a licensing and supervision framework for all electronic payment methods in the European Union over the course of the next several years. The objective is to create a single, internal payments market throughout the European Union. The directive will likely be finalized in 2007 and adopted as legislation in the member states of the European Union through to the end of 2008. By 2010, licensing will be required and supervision will commence for American Express’ card operations in the European Union. One provision of this draft directive gives merchants the right to surcharge, subject to disclosure requirements. At the same time, new technical standards are being adopted by the industry. All of the foregoing will entail costs to implement and maintain.

U.S. CARD SERVICES

As a significant part of its proprietary Card issuing business, TRS and its U.S. banking subsidiaries issue a wide range of Card products and services to consumers and small businesses in the United States. Our consumer travel business, which provides travel services to Cardmembers and other consumers, complements our core Card business, as does our travelers check and prepaid services business. The proprietary Card business offers a broad set of card products to attract our target customer base. Core elements of our strategy are:

• focusing on acquiring and retaining high-spending, creditworthy Cardmembers across multiple groups; • designing Card products with features that appeal to specific customer segments;

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• the use of strong incentives to drive spending on our various Card products, including our Membership Rewards® program and other rewards features; • the use of loyalty programs such as Delta SkyMiles®, sponsored by our cobrand and other partners to drive spending; • the development and nurturing of wide-ranging relationships with cobrand and other partners; • a multi-card strategy (having multiple Card products in customers’ wallets); and • high-quality customer service.

Consumer and Small Business Services

We and our licensees offer individual consumer charge Cards such as the American Express Card, the American Express One® Card, the American Express® Gold Card, the Platinum Card®, and the ultra-premium Centurion® Card; revolving credit Cards such as Blue from American Express®, Blue Cash® Card from American Express and Blue Sky from American Express, a travel rewards Card launched in 2005; and a variety of Cards sponsored by and cobranded with other corporations and institutions, such as the Delta SkyMiles® Credit Card from American Express, True EarningsSM Card exclusively for Costco Members, Starwood Preferred Guest® Credit Card and JetBlue Card from American Express.

Charge Cards

Our charge Cards, which carry no pre-set spending limits, are primarily designed as a method of payment and not as a means of financing purchases of goods or services. Charges are approved based on a variety of factors including a Cardmember’s current spending patterns, payment history, credit record, and financial resources. Cardmembers generally must pay the full amount billed each month, and no finance charges are assessed on the balance. accounts that are past due are subject, in most cases, to a delinquency assessment and, if not brought to current status, may be cancelled. The no preset-spending limit and pay-in-full nature of these products attract high-spending Cardmembers who want to use a charge Card to facilitate larger payments.

The charge Cards also offer enrollment services to Cardmembers. The Sign & Travel® program gives qualified U.S. Cardmembers the option of extended payments for airline, cruise and certain travel charges that are purchased with our charge Cards. The Extended Payment Option offers qualified U.S. Cardmembers the option of extending payment for certain charges on the charge Card in excess of a specified amount.

Revolving Credit Cards

We offer a variety of revolving credit Cards. These Cards have a range of different payment terms, grace periods and rate and fee structures. Since late 1994, our lending balance growth has been among the top tier of card issuers. Much of this growth has been due to the breadth of our lending products, such as Blue from American Express, Blue Cash from American Express and the Delta SkyMiles Credit Card from American Express, as well as the increased

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number of charge Cardmembers who have taken advantage of our “lending on charge” options (such as the Sign & Travel and Extended Payment Option programs described above).

Cobrand Cards

We issue Cards under cobrand agreements with selected commercial firms in the United States. The competition among card issuers and networks for attractive cobrand card partnerships is quite intense because they can generate high-spending loyal cardholders. The duration of our cobrand arrangements generally ranges from five to ten years. Cardmembers earn rewards provided by the partners’ respective loyalty programs based upon their spending on the cobrand Cards, such as frequent flyer miles, hotel loyalty points and cash back. We make payments to our cobrand partners, which can be significant, based primarily on the amount of Cardmember spending and corresponding rewards earned on such spending and, under certain arrangements, on the number of accounts acquired and retained. We expense amounts due under cobrand arrangements in the month earned. Payment terms vary by arrangement, but are monthly or quarterly. Generally, once we make payment to the cobrand partner, the partner is solely liable for providing rewards to the Cardmember under the cobrand partner’s own loyalty program. As the issuer of the cobrand card, we retain all the credit risk with the Cardmember and bear the receivables funding and operating expenses for such cards. The cobrand partner retains the risk associated with the miles, points or other currency earned by the Cardmember under the partner’s loyalty program.

Cobrand Partnerships with Financial Services Institutions

We also issue Cards that are marketed under cobrand partnership arrangements with financial services partners. Such partnerships involve the offering of a standard product (issued by TRS or one of its subsidiaries) to customers of the financial services partner, generally cobranded with the partner’s name on the Card. Under these arrangements, we make payments to the financial services partners that are primarily based on the number of accounts acquired and retained through the arrangement and the amount of Cardmember spending on such Cards. The duration of such arrangements generally ranges from three to seven years.

For example, during 2005 we established an alliance with Guaranty Bank to distribute cobranded cards to Guaranty’s small business customers throughout its branch network in Texas and California. In 2006, we expanded this partnership to include a cobranded American Express Preferred Rewards Gold Card, to be offered to Guaranty Bank’s consumer customers at its various locations. This past year, we also announced a strategic bank partnership between OPEN from American Express and Sovereign Bank, under which Sovereign will offer American Express Business Cards to small business customers in the Northeast.

American Express Centurion Bank and American Express Bank, FSB as Issuers of Certain Cards

Our revolving credit Cards in the United States are issued by American Express Centurion Bank (“Centurion Bank”), which markets primarily through direct mail and other remote marketing channels, and American Express Bank, FSB (“AEBFSB”), which markets

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primarily through in-person selling and third-party cobrand partners. Both banks are wholly owned subsidiaries of TRS.

Centurion Bank is a Utah-chartered industrial bank regulated, supervised and regularly examined by the Utah Department of Financial Institutions and the Federal Deposit Insurance Corporation (“FDIC”). Centurion Bank is an FDIC-insured depository institution. AEBFSB is a federal savings bank regulated, supervised and regularly examined by the Office of Thrift Supervision (“OTS”), a bureau of the U.S. Department of the Treasury. AEBFSB is an FDIC- insured depository institution. The activities of Centurion Bank and AEBFSB are subject to examination by their respective regulators. Both banks take steps to maintain compliance programs to address the various safety and soundness, internal control and compliance requirements, including anti-money laundering requirements, that apply to them. You can find a further discussion of the anti-money laundering initiatives affecting us under “Corporate and Other” below.

Centurion Bank is subject to the risk-based capital adequacy requirements promulgated by the FDIC. Under these regulations, a bank is deemed to be well-capitalized if it maintains a tier one risk-based capital ratio of at least 6%, a total risk-based capital ratio of at least 10% and a leverage ratio of at least 5%. Based on Centurion Bank’s tier one risk-based capital, total risk- based capital and leverage ratios, Centurion Bank was considered to be well-capitalized at December 31, 2006.

AEBFSB is subject to the risk-based capital adequacy requirements promulgated by the OTS. Under these regulations, a federal savings bank is deemed to be well-capitalized if it maintains a tier one risk-based capital ratio of at least 6%, a total risk-based capital ratio of at least 10%, and a tier one core capital ratio of at least 5%. Based on AEBFSB’s tier one risk- based capital, total risk-based capital and tier one core capital ratios, AEBFSB was considered to be well-capitalized at December 31, 2006.

Card Pricing and Account Management

Certain of our Cards, particularly charge Cards, charge an annual fee that varies based on the type of Card and the number of Cards for each account. We also offer many revolving credit Cards with no annual fee but on which we assess finance charges for revolving balances. Depending on the product, we also charge Cardmember fees to participate in rewards programs, for account performance (e.g., late fees) or for certain services (e.g., additional copies of account statements). We apply standards and criteria for creditworthiness to each Cardmember through a variety of means both at the time of initial solicitation or application and on an ongoing basis during the Card relationship. We use sophisticated credit models and techniques in our risk management operations and believe that our strong risk management capabilities provide us with a competitive advantage.

Membership Rewards® Program

The Membership Rewards program from American Express has over 1,300 redemption partners worldwide and is offered in 98 markets. The program allows Cardmembers to earn one

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point for virtually every dollar charged on eligible, enrolled American Express® Cards, and then redeem their points for a wide array of rewards, including travel, retail merchandise, dining and entertainment, financial services and even donating their points to benefit tens of thousands of charities. Points have no expiration date, and there is no limit on the number of points one can earn.

In 2006, we introduced innovative features such as First CollectionSM portfolio, a luxury rewards tier exclusively for Platinum Card® and Centurion® card members. Redemption partners include some of the world’s finest retail establishments and service providers, such as Tiffany & Co., Lamborghini and Oberoi Hotels & Resorts. We also introduced Bonus Points MallSM program, an online gateway to more than 100 retailers, where Cardmembers can earn double Membership Rewards points for their purchases. We also redesigned our Web site to deliver enhanced capabilities. In 2007, we plan to introduce a tiered structure that will include tailored rewards offerings and services for our premium Cards.

When a Cardmember enrolled in the Membership Rewards program uses the Card, we establish reserves to cover the cost of estimated future reward redemptions for points earned to date. When a Membership Rewards program enrollee redeems a reward using Membership Rewards points, we make a payment to the Membership Rewards program partner providing the reward pursuant to contractual arrangements. Because of higher charge volumes and increased customer participation in Membership Rewards, the expense of the program has increased both in the United States and internationally over the past several years and continues to grow.

Despite the increasing costs of the Membership Rewards program as penetration and usage expand, it plays a vital role in our profitability. The program continues to be an important driver of Cardmember spending and loyalty. We believe, based on historical experience, that Cardmembers enrolled in rewards programs yield higher spend, stronger credit performance and greater profit for us. For the three-year period through the end of 2006, total spending by U.S. Membership Rewards participants increased by 66%. By offering a broader range of redemption choices, we have given our Cardmembers more flexibility in the use of their rewards points and favorably affected our average cost per point. We continually seek to optimize the overall economics of the program and make changes to enhance its value to Cardmembers. Our program is also valuable to merchants that become redemption partners as we bring them high-spending Cardmembers and new marketing channels to reach these Cardmembers.

Cardmember Special Services and Programs

Throughout the world, our Cardmembers have access to a variety of fee-free and fee- based special services and programs, depending on the type of Cards they have and their country of residence. Examples of these special services and programs include:

• the Membership Rewards program; • Automatic Bill Pay; • Global AssistSM Hotline; • Emergency Check Cashing Privileges; • Buyer’s Assurance Plan; • Automatic Flight Insurance; • Car Rental Loss and Damage Insurance; • Premium Baggage Protection;

• Purchase Protection Plan; • Assured Reservations;

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• Emergency Card Replacement; • Online Fraud Protection Guarantee; • Return Protection; • Credit Card Registry; • Manage Your Card Account Online; • Credit Bureau Monitoring and Reporting; • Online Year End Summary; • Identity Theft Assistance; and • Roadside Assistance — Anywhere; • Event Ticket Protection Plan.

During 2006, we began “Membership Changes EverythingSM,” a five-week series of free activities in the New York City area for Cardmembers who carry American Express-issued Cards, which was designed to exhibit the benefits and services that accompany Card membership.

We offer the Platinum Card, a charge Card that provides access to additional and enhanced travel, protection, personal assistance and other services. In addition, we offer the Centurion® Card, an ultra-premium charge card providing highly personalized customer service and an array of travel, lifestyle and financial benefits.

OPEN from American Express®

In addition to our U.S. Consumer Card business, through AEBFSB we are also a leading provider of financial services to small businesses (firms that generally have less than 100 employees and/or sales of $10 million or less), a key growth area in the United States. OPEN from American Express (“OPEN”) offers small business owners a wide range of tools, services and savings designed to meet their evolving needs, including:

• charge and credit Cards; • access to lines of credit up to $100,000; • discounts at select suppliers of business services and products, including airline tickets, car rentals, hotel stays, package shipping, computer and software equipment, telecommunications, printing and photocopying services and other business services; • expense management reporting; • enhanced online account management capabilities; • retail and travel protections such as baggage insurance; and • travel services.

During 2006, we continued to expand the breadth of products and services offered by OPEN® by, among other things, introducing several new Cards:

• the JetBlue Business Card from American Express, which offers small business owners an automatic OPEN Savings® discount of 5% on JetBlue flights, one award dollar on virtually every purchase and double awards dollars on select small business purchases, including JetBlue travel, gasoline, office supplies, wireless phone charges and car rentals; SM • the American Express SimplyCash Business Card offering automatic cash back rewards for small business owners through monthly rebates within the Cardmembers’ statements. Cardmembers receive 5% cash back each month on gas, office supplies

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and wireless charges, and 1% cash back on virtually all other purchases; and • The Starwood Preferred Guest® Business Credit Card, which incorporates programs and services tailored specifically to the small business owner and gives Starpoints for all their business spending that can be redeemed for hotel stays or airline flights. At the same time, we enhanced and relaunched the Starwood Preferred Guest Credit Card for consumers, enabling Cardmembers to take advantage of greater benefits and richer rewards.

These programs are in addition to OPEN Savings, which is a program that offers savings for OPEN customers on travel and other major business expenses simply by using their American Express® Business Card at participating companies. These savings may be combined with any existing discounts or offers. During 2006, we expanded OPEN Savings by signing new partners and expanding relationships with existing ones in various categories, including:

• the launch of airline partners Delta Airlines and JetBlue Airways. Small business owners using any American Express Business Card receive an automatic 3% discount on the total cost of Delta and JetBlue flights. In addition, Cardmembers who purchase flights on these airlines, using their respective Delta SkyMiles, SkyPoints Delta Business Card or JetBlue Business Card, will receive an additional 2% discount off the total cost of the flights; and • the inclusion of two new technology partners, Gateway and Symantec.

Competition — Card Issuing Business

Our proprietary Card business encounters substantial and intense competition. As a card issuer, we compete in the United States with financial institutions (such as Citibank, Bank of America, JPMorgan Chase, and Capital One Financial) that issue general purpose credit cards, primarily under revolving credit plans, and the Morgan Stanley affiliate that issues the on the Discover Business Services network. We also encounter limited competition from businesses that issue their own cards or otherwise extend credit to their customers, such as retailers and airline associations, although these cards are not generally substitutes for our Cards because of their limited acceptance. Because of continuing consolidations among banking and financial services companies and credit card portfolio acquisitions by major card issuers, there are now a smaller number of significant issuers and the largest issuers have continued to grow, in several cases by acquiring card portfolios and also by cross-selling through their retail branch networks.

Competing card issuers offer a variety of products and services to attract cardholders, including premium cards with enhanced services or lines of credit, airline frequent flyer program mileage credits, cash rebates and other reward or rebate programs, services for small business owners, “teaser” promotional interest rates for both credit card acquisition and balance transfers, and cobranded arrangements with partners that offer benefits to cardholders. In recent years we have encountered increasingly intense competition in the small business sector, as competitors have targeted OPEN’s customer base as a result of our leadership position in providing financial services to small businesses.

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Most financial institutions that offer demand deposit accounts also issue debit cards to permit depositors to access their funds. Use of debit cards for point-of-sale purchases has grown as most financial institutions have replaced ATM cards with general purpose debit cards bearing either the VISA or MasterCard logo. As a result, the volume of transactions made with debit cards in the United States has continued to increase significantly and, in the United States, has grown more rapidly than credit and charge card transactions. Debit cards are marketed as replacements for cash and checks, and transactions made with debit cards are typically for small dollar amounts. The ability to substitute debit cards for credit and charge cards is limited because the consumer must have sufficient funds in his or her demand to cover the transaction in question. For example, larger purchases or delayed purchases may not be appropriate for debit cards. We do not currently issue point-of-sale debit cards for use on the American Express network.

The principal competitive factors that affect the card-issuing business are:

• the features and the quality of the services, including rewards programs, provided to Cardmembers; • the number, spending characteristics and credit performance of Cardmembers; • the quantity and quality of the establishments that accept Cards; • the cost of Cards to Cardmembers; • pricing, payment and other Card account terms and conditions; • the number and quality of other payment instruments available to Cardmembers; • the nature and quality of expense management data capture and reporting capability; • the success of targeted marketing and promotional campaigns; • reputation and brand recognition; • the ability of issuers to manage credit and interest rate risk throughout the economic cycle; • the ability of issuers to implement operational and cost efficiencies; and • the quality of customer service.

As the payment industry continues to evolve, we are also beginning to face competition from non-traditional players, such as online networks and telecom providers, that leverage new technology to create payment solutions.

Financing Activities

American Express Credit Corporation, a wholly owned subsidiary of TRS, along with its subsidiaries (“Credco”), purchases the majority of charge Card receivables arising from the use of Cards issued in the United States and in certain currencies outside the United States. Credco finances the purchase of receivables principally through the issuance of commercial paper and the sale of medium- and long-term notes. Centurion Bank and AEBFSB finance their revolving credit receivables, in part, through the sale of short- and medium-term notes and certificates of deposit in the United States. TRS, Centurion Bank and AEBFSB also fund receivables through asset securitization programs. The cost of funding Cardmember receivables and loans is a major expense of Card operations. (You can find a discussion of TRS’ and Centurion Bank’s securitization and other financing activities on page 32, page 35, pages 43-48 and pages 55-56

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under the caption “Financial Review,” and Note 5 on pages 87-89 of the Company’s 2006 Annual Report to Shareholders, which portions we incorporate herein by reference.)

Regulation – Card Issuing Business

The charge card and consumer lending businesses are subject to extensive regulation. In the United States, the business is subject to a number of federal laws and regulations, including:

• the Equal Credit Opportunity Act (which generally prohibits discrimination in the granting and handling of credit); • the Fair Credit Reporting Act (“FCRA”), as amended by the Fair and Accurate Credit Transactions Act (“FACT Act”) (which, among other things, regulates use by creditors of consumer credit reports and credit prescreening practices and requires certain disclosures when an application for credit is rejected); • the Truth in Lending Act (“TILA”) (which, among other things, requires extensive disclosure of the terms upon which credit is granted), including the amendments to TILA that were adopted through the enactment of the Fair Credit and Charge Card Disclosure Act (which mandates certain disclosures on credit and charge card applications); • the Fair Credit Billing Act (which, among other things, regulates the manner that billing inquiries are handled and specifies certain billing requirements); and • the Electronic Funds Transfer Act (which regulates disclosures and settlement of transactions for electronic funds transfers including those at ATMs).

Certain federal privacy-related laws and regulations govern the collection and use of customer information by financial institutions (see “Corporate and Other” below). Federal legislation also regulates abusive debt collection practices. In addition, a number of states, the European Union, and many foreign countries in which we operate have significant consumer credit protection and disclosure and privacy-related laws (in certain cases more stringent than the laws in the United States). The application of bankruptcy and debtor relief laws affect us to the extent that such laws result in amounts owed being classified as delinquent and/or charged off as uncollectible. Card issuers and card networks are subject to anti-money laundering and anti- terrorism legislation, including, in the United States, the Patriot Act. (For a discussion of this legislation and its effect on our business, see “Regulation” in the “Global Network Services” section above and see “Corporate and Other” below.)

Centurion Bank, AEBFSB and our other bank entities are subject to a variety of laws and regulations applicable to financial institutions. Changes in such laws and regulations or in the regulatory application or judicial interpretation thereof could impact the manner in which we conduct our business and the costs of compliance. The regulatory environment in which our Card and lending businesses operate has become increasingly complex and robust. More recently, the U.S. Congress, as well as regulators and various consumer advocacy groups, have begun increasing focus and attention on the types and levels of fees charged by card issuers for, among other things, late payments, returned checks, payments by telephone, copies of statements and the like. We regularly review and, as appropriate, refine our business practices in light of existing and anticipated developments in laws, regulations and industry trends so we can

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continue to manage our business prudently and consistent with regulatory requirements and expectations.

In January 2003, the Federal Financial Institutions Examination Council (the “FFIEC”), an interagency body composed of the principal U.S. federal entities that regulate banks and other financial institutions, issued new guidance to the industry on credit card account management and loss allowance practices (the “Guidance”). The Guidance covers five areas: (i) credit line management, (ii) over-limit practices, (iii) minimum payment and negative amortization practices, (iv) workout and forbearance practices, and (v) certain income (fee) recognition and loss allowance practices. The Guidance is generally applicable to all institutions under the supervision of the federal bank regulatory agencies that comprise the FFIEC, although it is primarily the result of the identification by bank regulators in their examinations of other credit card lenders’ practices deemed by them to be inappropriate, particularly, but not exclusively, with regard to subprime lending programs. At present, we do not have any lending programs that target the subprime market. Centurion Bank and AEBFSB evaluate and discuss the Guidance with their respective regulators on an ongoing basis as part of their regulatory examination processes, and, as a result, may refine their practices from time to time based on regulatory input. The Guidance has not had, nor do we expect it to have, any material impact on our businesses or practices.

Global Travelers Cheques and Prepaid Services (“TCPS”)

We have been in the business of issuing and selling travelers checks since 1891. In addition to travelers checks, we also offer a variety of other prepaid products, including reloadable and non-reloadable prepaid cards and, through American Express Incentive Services L.L.C., a joint venture with Maritz Inc., we offer various incentive prepaid products, including the Corporate Gift Cheque, the Incentive Funds Card and several points-based incentive cards.

We sell the American Express® Travelers Cheque (“Travelers Cheque” or “Cheque”) as a safe and convenient alternative to cash. Travelers Cheques are available in eight currencies, including . We also issue and sell other forms of paper travelers checks: American Express® Gift Cheques, which are available in U.S. and Canadian dollars, and the American Express Cheque-Secure Funds, which are available in dollars and Euros, and are offered in certain countries as a safe way to keep cash at home. Sales of Travelers Cheques declined slightly in 2006, reflecting the migration of the prepaid business toward plastic.

TCPS offers prepaid gift cards in the United States: the American Express® Gift Card (“Gift Card”), which can be used in the United States at businesses that accept American Express Cards, subject to certain usage limitations, and mall-branded gift cards, which are specifically designed for use solely at merchants that accept the American Express Card and that are located within a specific shopping mall. Our Gift Cards are now sold through tens of thousands of locations throughout the United States, and we added many new ones during the year, including gas stations, retail bank branches and grocery stores. Sales of Gift Cards continued to rise, reflecting the growing popularity of these products and our efforts to increase buying convenience for customers.

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We also continued to offer the Travelers Cheque Card (“TCC”), a reloadable, prepaid card marketed as a plastic form of our Travelers Cheque. During 2006, the TCC was sold in the United States, the United Kingdom and Germany, in U.S. dollars, British pounds sterling and Euros, respectively, for use worldwide, for both online and in-person purchases and at ATMs (ATM fees apply) that accept the American Express Card. TCC holders have access to the same customer service and security provided to holders of Travelers Cheques, including card replacement or refund if the TCC is lost or stolen (usually within 24 hours).

We sell American Express paper and plastic prepaid products through a variety of channels. We sell these products directly to consumers via phone and the Internet. Travelers Cheques and Gift Cheques are sold primarily through a broad network of selling outlets worldwide, including American Express travel offices, independent travel agents, financial institutions, and many other financial, travel and commercial businesses. Many of the same sellers also sell our prepaid cards. We sometimes compensate selling outlets for their sales.

In 2006, we continued to expand our Gift Card retail distribution network significantly to include Walgreens and Office Depot, as well as more than 2,500 locations in the grocery category, malls and large national retail chains. These sellers use prepaid card merchandise racks to market and sell our Gift Cards.

Competition – Travelers Checks and Prepaid Cards

Travelers Cheques compete with a wide variety of financial payment products, including cash, foreign currency, checks, other brands of travelers checks, and, increasingly, debit and ATM cards, as well as credit and charge cards (even though travelers checks and prepaid cards are not substitutes for charge and credit cards) and, to a limited extent, competing prepaid cards. The principal competitive factors affecting the travelers check and prepaid card industry are:

• the number and location of merchants willing to accept the form of payment; • the availability to the consumer of other forms of payment; • the amount of fees charged to the consumer; • the compensation paid to, and frequency of settlement by, selling outlets; • the accessibility of sales and refunds for the products; • the success of marketing and promotional campaigns; and • the ability to service the customer satisfactorily, including for lost or stolen instruments.

Our prepaid cards (“open-system" cards that can be used at multiple unaffiliated sellers of goods or services) compete with the same payment methods described above; however, gift cards compete primarily with cash, checks and other open-system and store-specific gift cards.

Regulation – Travelers Checks and Prepaid Cards

As an issuer of travelers checks, we are regulated in the United States under the “money transmitter” or “sale of check” laws in effect in most states. These laws require travelers check (and, where applicable, prepaid card) issuers to obtain licenses, to meet certain safety and

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soundness criteria, to hold outstanding proceeds of sale in highly-rated and secure investments, and to provide detailed reports. We invest the proceeds from sales of our Travelers Cheques and prepaid cards issued by TRS in accordance with applicable law, predominantly in highly-rated debt securities consisting primarily of intermediate- and long-term federal, state and municipal obligations. In 2006, a few states (e.g., Hawaii and New Hampshire) passed money transmitter laws for the first time and we have applied for or secured licenses in each of these jurisdictions. Many states examine licensees annually. In addition, travelers check issuers are required by the laws of many states to comply with state unclaimed and abandoned property laws under which such issuers must pay to states the face amount of any travelers check that is uncashed or unredeemed after 15 years. A few states have amended their abandoned property laws to apply to prepaid cards.

In the past few years, some states have enacted laws pertaining to the issuance and the sale of gift cards. We continue to monitor state legislative activity restricting the fees that consumers can be charged or the expiration dates that can apply to gift cards. In certain states where regulation has made it impossible for us to offer gift cards profitably, we have limited or withdrawn from selling these cards. Federal anti-money laundering regulations require, among other things, the registration of traveler check issuers as “Money Service Businesses” and compliance with anti-money laundering recordkeeping and reporting requirements by issuers and selling outlets. At this time, stored value issuers and redeemers, while considered to be “Money Service Businesses,” are not required to register under these regulations. Outside the United States, there are varying licensing and anti-money laundering requirements, including some that are similar to those in the United States.

American Express Consumer Travel Network – USA

The American Express Consumer Travel Network – USA provides travel, financial and Cardmember services to consumers through American Express-owned travel service offices, call centers, participating American Express Representatives (independently-owned locations that operate under the American Express brand) and the Consumer Travel Web site. U.S. Consumer Travel has distinguished itself in the luxury marketplace through its Platinum Travel Services and Centurion Travel Services, which provide programs such as the International Airline Program, which offers two-for-one fares on certain international first and business class tickets, and the Fine Hotels & Resorts program, a luxury hotel program offering room upgrades and value-added amenities. Other premium programs developed by Consumer Travel for Centurion and Platinum Card members include Centurion Cruise Privileges®, Centurion Destinations® and Platinum Destinations® Vacations, the Private Jets Program, Private Villas and Yachts. Consumer Travel also provides Membership Rewards programs designed for unique Cardmember segments such as Membership Rewards Land & Sea packages and Gold Destinations.

In addition, the Consumer Travel business operates a wholesale travel business in the United States through our Travel Impressions subsidiary. (A wholesaler purchases inventory, such as hotel rooms, from suppliers and then resells the services to the customer at retail prices that the wholesaler determines.) Our wholesale travel business packages American Express

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Vacations and distributes travel packages through other retail travel agents and private label brands for third parties in the United States.

Our Consumer Travel Web site, americanexpress.com/travel, offers a full range of travel rates and discounts on airfares, hotels, car rentals, last-minute deals, cruises and full vacation packages. The Web site offers unique American Express Cardmember benefits such as an American Express Travel Office locator, Travel Specialist finder tools, double Membership Rewards points, and travel planning resources and destination content through the “Local Color” portion of the Web site. In addition, Cardmembers are able to redeem Membership Rewards points for some categories of travel through both our Web site and our call centers and Travel Offices.

In 2006, Consumer Travel attracted eight new members with 43 locations to our Representative Network, including The Travel Team, CI Travel and Passageways Travel.

TRS’ worldwide travel network of more than 2,200 retail travel locations is important in supporting the American Express brand and providing Cardmember servicing throughout the world, including a range of Traveler Cheques, Gift Cheques, Gift Cards and foreign exchange services.

Competition – Consumer Travel Network – USA

American Express Consumer Travel competes with a variety of different competitors including traditional “brick and mortar” travel agents, credit card companies with significant travel benefits, online travel agents and travel suppliers that distribute their products to consumers directly via the Internet or telephone-based customer service centers. In recent years we have experienced an increasing presence of “niche” players that are seeking to capitalize on the growth in the luxury travel segment by combining luxury travel offers with concierge-type services.

INTERNATIONAL CARD & GLOBAL COMMERCIAL SERVICES

International Proprietary Consumer Card

We issue our charge and credit Cards in numerous countries around the globe. Although our geographic scope is widespread, we generally do not have significant share in the markets in which we operate. We focus primarily on those markets that we believe offer us the greatest financial opportunity.

The Company continued to bolster its international proprietary Card business through the launch of numerous new or enhanced Card products during 2006. These are Cards that we issue, either on our own or, as further described below, as cobrands with partnering institutions. This past year, among other new proprietary products, we announced or launched:

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• the American Express RED Card® in the United Kingdom, in partnership with Project RED, pursuant to which a portion of the money spent by Cardmembers is donated to the Global Fund for HIV/Aids programs in Africa; • cobranded consumer credit Cards with Qantas airlines in Australia and Thai Airways International in Thailand, designed to appeal to the airlines’ most frequent travelers; • the American Express small business platinum charge Card in , and a small business gold charge Card in ; • new Platinum credit Cards in and Argentina; and • distribution agreements with Commerzbank to distribute consumer Cards in Germany; with ABN-AMRO to distribute consumer Cards in the ; and with Mitsubishi UFJ Financial Group to distribute consumer Cards in .

We offer many of the same programs in our international proprietary Card issuing business as we do in our U.S. proprietary issuing business. For example, as in the United States, we offer various flexible payment options similar to our Sign & Travel program and our Extended Payment Option to Cardmembers in several international markets.

Also, as in the United States, we issue Cards internationally under distribution agreements with banks. Another example of our distribution partnerships is affinity cards with fraternal, professional, educational and other organizations. For instance, we have been successful in penetrating the affinity card segment in Australia, where we issue Cards with the majority of the largest professional associations in that country. In Australia, affinity cards are a substantial part of our total revolving portfolio and contribute to our proprietary consumer lending activities.

As in the United States, rewards programs are a strong driver of Cardmember spending in the international consumer business. We have more than 1,300 redemption partners across our international business, with an average of 75 partners in each country; less than 23% of these partners are in the travel industry. Cardmembers can redeem their points with more than 35 airlines and over 200 hotels. Our redemption options include travel, retail merchandise, entertainment, shopping and recreation gift certificates, experiences, financial services and charity rewards. In 2006, we continued to enhance our rewards programs in several markets, offering more flexible choices that enable Cardmembers to redeem points more quickly. Significantly, in selected markets we launched TravelKey, which allows Cardmembers to book flights and vacations with virtually any airline to any destination without restrictions, and enhanced the Membership Rewards Web site to offer easier online redemption. In Australia, we introduced Membership Rewards Concierge Service to help Cardmembers create customized rewards packages.

Membership Travel Services International provides premium travel and lifestyle, as well as concierge services, a benefit that exemplifies the customer experience provided to our Platinum Card and Centurion Card customers, through 25 exclusively dedicated international call centers in 25 countries. Additionally, Membership Travel Services operates 25 proprietary Travel Service Offices in Mexico, Argentina and Italy to provide Cardmembers with travel and foreign exchange assistance. Across all markets, we are enhancing our capabilities to sell exclusively negotiated benefits and luxury travel packages with preferred suppliers through

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American Express’s International Airline Program, the Fine Hotel & Resorts Program and American Express® Vacations to create exceptional experiences for our Cardmembers.

Competition – International Proprietary Consumer Card

As compared to the United States, consumers outside the United States use cards for a smaller percentage of their total payments, with some large emerging market countries just beginning to transition to card usage in any meaningful way. Currently, we have a small share of consumer card spending outside the United States. Internationally, our proprietary Card issuing business is subject to competition from multinational banks, such as Citibank, HSBC and Banco Santander, as well as many local banks and financial institutions. Globally, we view Citibank and HSBC as our strongest competitors, as they offer card products in a large number of markets.

Global Commercial Services

Through our Global Commercial Services (“GCS”) group, we provide expense management services to more than 100,000 firms worldwide through our Corporate Card program, Corporate Purchasing Solutions, electronic invoicing and payment services (Source-to- Settle (“S2S”SM)) and Global Business Travel Services. American Express is a leading global issuer of commercial cards and is also a leading global travel management company for corporations and businesses. During 2006, we added or retained several major Corporate Card clients in the United States and internationally, including Accenture, Costco Wholesale Corporation, Merrill Lynch, Phillips and Siemens Corporation. We also were awarded the corporate travel business of several new clients including Astra Zeneca PLC, Medtronic Inc., Nortel Networks Corporation, BearingPoint Inc. and Lear Corporation. GCS offers four primary products and services:

• Corporate Card, issued to individuals through a corporate account established by their employer and designed primarily for travel and entertainment spending; • Corporate Purchasing Solutions, an account established by a company to pay for everyday business expenses such as office and computer supplies; • S2S, a suite of electronic solutions for companies looking to automate their source-to- settle processes and gain savings and control by integrating steps in their entire procurement cycle; and • Business Travel, which helps businesses manage their travel expenses through a variety of travel-related products and services.

Corporate Card, Corporate Purchasing Solutions, and S2S

The American Express® Corporate Card is a charge card that individuals may obtain through a corporate account established by their employer for business purposes. Through the Corporate Card program, companies can manage their travel, entertainment and purchasing expenses and improve negotiating leverage with suppliers, among other benefits. We use our direct relationships with merchants to offer Corporate Card clients superior data about company spending, as well as streamlined dispute resolution. We issue local currency Corporate Cards in

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over 35 countries, which we distribute through proprietary operations and partner banks, and international dollar Corporate Cards in over 100 countries.

Corporate Purchasing Solutions (“CPS”) helps global, large and middle market companies manage their everyday spending. CPS is used by corporations to buy everyday goods and services, such as office supplies and industrial supplies and equipment, in 24 markets around the world. This type of spending by corporations is less susceptible to economic downturns than traditional travel and entertainment spending and helps to diversify the spending mix on our Cards.

S2SSM solutions are designed to help companies improve the efficiency of their supply chain, reduce processing costs and increase control and compliance along all steps in the purchasing process. The S2S product set significantly expands the American Express suite of commercial card products and services and responds to clients’ needs as they transform their purchasing process, from sourcing and ordering through invoice and payment. To support the development and roll-out of the S2S electronic invoice and payment suite of solutions, at the end of 2006, the Company acquired Harbor Payments, Inc., an Atlanta-based technology company with an established network of corporate clients and business-to-business suppliers.

In addition to providing expense management services to large and global corporations, our GCS business markets Corporate Card programs to middle market companies (defined in the United States as firms with annual revenues of $10 million to $1 billion) worldwide. GCS is focused on continuing to expand its business with midsize companies, which represent significant growth opportunities. Businesses of this size often do not have corporate card programs. However, once enrolled in the program, midsize companies, which usually do not have well-defined purchasing programs, will typically put a significant portion of their business spending (both travel and entertainment and non-T&E, such as office supplies) on the Card because they can gain control, savings and employee benefits. In 2005, our GCS business invested in a wide range of marketing programs and product enhancements, and added sales staff to build our business within the midsize segment. In support of this strategy, GCS offers the Savings at WorkSM program in the United States, as well as similar programs globally, which provide companies with cash back and/or discounted pricing on everyday business products and services, such as car rentals, hotels, restaurants and courier services.

With the increased focus on cost containment by firms, we have experienced significant growth over the past few years in the Corporate Meeting Card, which helps U.S.-based and international companies control company meeting expenses. The Corporate Meeting Card is available in 19 global markets and provides clients with a tool to capture such spending and provides company meeting planners with a tool to simplify the meetings payment process and access to data to negotiate with suppliers. GCS also offers the Corporate Defined Expense Program. This product allows companies to set a maximum amount to be charged on a Card before expiration and permits them to segregate spending data for specific purposes on projects. It is designed for companies that want to allocate funds for a specific purpose, such as employee relocations or training. During 2006, we also partnered with a group of major hotel companies in North America and Europe to offer our corporate clients secure Web-based access to enhanced data regarding

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their employees’ lodging spend. This enhanced data is available for integration with expense reporting providers to allow for pre-itemization of lodging transactions, thereby reducing the amount of time required for employees to process their T&E expenses.

GCS also offers American Express @ Work®, a secure, web-based suite of online tools that enables clients to manage their global Corporate Card, Corporate Purchasing Solutions and Corporate Meeting Card programs on a 24/7 basis through a single user interface. @ Work provides authorized client representatives online access to global management information to help them gain visibility into their spending patterns, as well as the ability to make changes to their program or Card accounts through an easy to use online interface. @ Work also includes automated expense reporting and reconciliation tools that enable clients to enforce program compliance and effectively integrate spend information with their internal accounting systems. This suite of online tools is intended to assist companies in managing expenses more efficiently than offline alternatives, thereby decreasing both the direct and indirect costs associated with maintaining accounts and ensuring program compliance.

Competition – Global Commercial Card Business

The commercial payments industry is dynamic and highly competitive, with competition increasingly intense at both the card network and card issuer levels. At the network level, we have experienced increasing competition in the commercial card marketplace, including aggressive expansion into new and emerging markets, efforts to transition business-to-business spend from cash and check to cards and electronic invoicing and payment vehicles and expanding marketing and advertising budgets for commercial services.

In addition, both VISA and MasterCard have increased efforts to support card issuers such as U.S. Bank, JPMorgan Chase, GE Capital Financial Inc. and Citibank (in the United States and globally), who are willing to build and support data collection and reporting necessary to satisfy customer requirements.

Card issuers have increasingly acquired niche technology offerings to enhance data capture capabilities and reporting functionality. These efforts are built on the solid progress of the bankcard associations to offer more global, robust solutions. As such, global servicing, data quality, technological functionality and simplicity, and customer experience are among the key competitive factors in the commercial card business.

Global Travel Services

GCS Global Travel Services consists of American Express Business Travel and Global Foreign Exchange Services.

American Express Business Travel provides globally integrated solutions, both online and offline, to help organizations optimize their travel investments and service their traveling employees. These solutions include travel reservation advice and booking transaction processing; travel expense management policy consultation; supplier negotiation and

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consultation; management information reporting, data analysis and benchmarking; and group and incentive travel services.

Business Travel services customers directly in 34 key markets worldwide, of which 28 are proprietary operations and six are managed through joint ventures. In addition, Business Travel also serves customers in other relevant markets through franchise partnerships. In 2006, Business Travel sold and franchised operations in Brazil and New Zealand. American Express processed $21.8 billion of travel spend globally in 2006.

Business Travel continues to update its economic model and invest in new innovative products, services and technologies to enhance the value that we deliver to our customers and address ongoing travel industry challenges and opportunities. For example, we have substantially reduced our reliance on commission revenues from suppliers (such as airlines or hotels), and now generate revenues primarily from customers who pay for the services that we provide. We have comprehensive cost-saving travel management offerings for our clients, including webfare guarantees for the small- and mid-sized segments in the United States, a travel management loyalty program with double Membership Rewards points for individual travelers and automatic ticket refunds in the United States and select international markets. We also offer customers savings and benefits through the Preferred Extra supplier value programs and advisory services, which provide consulting solutions in all areas of travel and entertainment expense management. Business Travel also offers the TravelBahn® Distribution Solution, a proprietary distribution solution that provides access to airline inventory and fares for American Express Business Travel customers with a number of carriers, in North America and in select international markets. Business Travel offers a range of other solutions to our customers that provide them with savings, control, services and traveler care.

Among other developments during 2006, we also worked with Rearden Commerce to launch American Express Intelligent Online Marketplace (AXIOMSM), an online marketplace of more than 135,000 suppliers that lets clients find, purchase and manage both traditional travel and related services, such as airport parking, dining and package shipping. This site passes on negotiated savings from our merchant partners to clients, and makes it easier for business travelers to book with approved suppliers.

During 2006, Business Travel also formed Global Advisory Services, providing clients with end-to-end solutions to help them optimize their investments in air, hotel, car rental and meetings spending. Business Travel also introduced Security Suite, a global traveler security solution to support our clients in locating and caring for their traveling executives in times of unexpected events and crises.

Business Travel continued numerous reengineering initiatives in 2006, including the rationalization of our network, standardization of platforms and processes and implementation of new technology solutions to increase the flexibility of our business model, increase productivity, reduce costs and enhance the quality of customer service globally. Business Travel has also moved many of its business processes and customer servicing online. In the United States, 43% of all of GCS’ business travel transactions were processed online, and while lower than in the

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United States, online penetration rates in other markets, including the United Kingdom, Canada, Mexico and Australia have been increasing in recent years, ranging from 7% to 27%.

Global Foreign Exchange Services (“FES”) consists of retail and wholesale foreign exchange services and International Payments. In 2006, we completed the divestiture of most of our retail travel and FES standalone city locations, with the exceptions of Australia, Mexico and Italy. We are concentrating the retail foreign exchange business in key international airports, including London’s Heathrow, the Aeroports de Paris and Changi Airport in . For corporate clients, our International Payments online payment product allows companies and banks to make cross-border payments in major foreign currencies at competitive exchange rates. Wholesale banknote services are also provided to select financial institutions and travel-related companies.

Competition – Global Travel Services

Business Travel continues to face intense competition in the United States and internationally from numerous traditional and online travel management companies, as well as from direct sales by airlines and other travel suppliers. Competition among travel management companies is mainly based on price, service, value creation, convenience, global capabilities and proximity to the customer. In addition, competition comes from corporate customers themselves, as some companies have become accredited as in-house corporate travel agents.

In 2006, significant changes were announced to the ownership and network structure of four of the major traditional travel management companies – Business Travel International, TQ3, Carlson Wagonlit and Navigant International, Inc. – consolidating and realigning the shape of the industry. Similarly, changes to the ownership structures of numerous other travel industry companies were announced in 2006, including, but not limited to, Qantas Airways Ltd., Sabre Holdings Corporation, Travelport Ltd. and Worldspan LP. In addition, the recently-withdrawn offer by US Airways to acquire Delta Air Lines has increased speculation that the U.S. airline industry may be entering a period of consolidation. More change in the industry is expected to follow. Each of these changes to the competitive environment in the industry may result in additional challenges to travel management companies, which could have a competitive impact.

For many years, travel management companies have faced pressure on revenues from airlines, as most carriers have stopped paying “base” commissions to travel agents for tickets sold. Carriers have also increased the number of transactions they book directly through their Web sites and other means. These trends have reduced the revenue opportunities for travel agents because they do not receive distribution revenue from directly booked transactions.

Overall, intense competition among travel management companies, the ongoing trends of airline direct sales, rise of low-cost carriers and ongoing reductions in or elimination of airline commissions and fees continue to put pressure on revenue for travel agents. We believe that the restructuring of our business model over the last few years by charging customers for the services we provide and the value we create, restructuring our expense base through the rationalization of our call center locations, transitioning many of our services online, and our global presence have helped us to balance these revenue pressures.

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American Express Bank

American Express Bank (“AEB”) serves affluent and high net worth individuals and financial institutions through over 75 locations in 47 countries and regions worldwide. AEB’s operations are conducted primarily through our indirect wholly owned subsidiary, American Express Bank Ltd., and its subsidiaries. AEB serves financial institutions worldwide and individual clients outside the United States. AEB does not directly or indirectly do business in the United States except as may be incidental to its activities outside the United States. The following discussion relating to AEB generally does not distinguish between U.S.- and non-U.S.- based activities.

AEB’s two primary business lines are Global Wealth Management (“GWM”), which incorporates The Private Bank and Financial Advisory Services, and the Financial Institutions Group (“FIG”). The Private Bank focuses on delivering an extensive range of investment management, trust and estate planning and banking services, including secured lending and investment certificates, to high net worth individuals. Financial Advisory Services provides a wide variety of local, domestic saving and investment products to affluent individuals in , Singapore, India, Mexico, Indonesia, the Philippines and Germany.

FIG provides financial institution clients with a wide range of correspondent banking products, including international payments processing (wire transfers and checks), trade-related payments and financing, cash management, loans, extensions of credit and investment products. AEB also distributes mutual funds through its financial institutions clients. In addition, AEB provides treasury and capital market products and services to its customers, including foreign exchange, foreign exchange options and other derivatives and interest rate risk management products.

AEB continues to work with other parts of American Express to cross-sell a range of payment, lending and financial service products and build deeper relationships with consumer and small business customers in key international markets. AEB markets its Private Bank services to a highly selective group of Cardmembers outside the United States. AEB offers credit products such as installment loans and revolving lines of credit to both Cardmembers and non-Cardmembers in Germany, Hong Kong, India and Singapore. AEB also issues deposit certificates denominated in U.S. dollars, euros, pounds sterling and Australian dollars through American Express International Deposit Company in the Cayman Islands.

AEB’s worldwide headquarters is located in New York City. It maintains an international banking agency in New York City and Miami, Florida, and facility offices in San Francisco, San Diego and Los Angeles, California, as well as a representative office in Atlanta, Georgia. Its wholly owned Edge Act subsidiary, American Express Bank International (“AEBI”), is headquartered in Miami, Florida, and has branches in New York City and Miami.

Risks – Banking Services

The global nature of AEB’s business activities is such that concentrations of credit to geographic regions are not unusual. AEB continually monitors and actively manages its credit

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concentrations to reduce the associated risk. The Private Bank’s loans are generally secured by liquid, marketable collateral. FIG controls its exposures by limiting its relationships to select banks and limiting its exposures to such banks to quantitative limits (by obligor, by country and by exposure type) that are periodically re-evaluated; such exposures also typically carry a short- term tenure and are trade-related, which generally has a lower risk profile. At December 31, 2006, AEB had significant investments in certain on- and off-balance sheet financial instruments, which were primarily represented by deposits with banks, securities, loans, forward contracts, contractual amounts of letters of credit (standby and commercial) and guarantees. The counterparties to these financial instruments were primarily unrelated to AEB, and principally consisted of consumers to whom AEB has extended loans, banks and other financial institutions and foreign government agencies operating geographically within the Asia/Pacific region, Europe, North America, Latin America, the Indian Subcontinent and /Africa.

AEB’s earnings are sensitive to interest rates because the repricing of its liabilities does not, generally, match the repricing of its assets. AEB invests deposits in excess of loans and the proceeds of investment certificates in highly-rated investment securities. It maintains mandatory investment portfolios in a number of countries as required by central banks. AEB monitors and controls its assets-liability mismatches both on a country and global level through a rigorous Earnings at Risk process and manages the mismatch of assets and liabilities by adjusting the repricing frequency of its investments or by using derivatives.

AEB sells foreign exchange, interest rate and equity products to its customer base and may decide to take short-term proprietary trading positions as a result of this business. The foreign exchange, interest rate and equity risk is managed at the branch and global level through a comprehensive Value at Risk process. AEB manages counterparty credit exposure on foreign exchange and interest rate derivatives through a dynamic mark-to-market and potential future exposure process, in which the current fair value and potential future exposure are calculated and managed against counterparty loan equivalent limits. You can find more information on AEB’s management of its foreign exchange risk and use of derivative financial instruments under the caption “Risk Management – Market Risk Management Process” and in Note 10 to the Company’s Consolidated Financial Statements on pages 51-52 and pages 93-95, respectively, of our 2006 Annual Report to Shareholders, which portions of such reports are incorporated herein by reference.

Because AEB conducts significant business in emerging market countries and in countries that are less politically and economically stable than the United States or those in Western Europe, its Private Banking, Financial Advisory Services and FIG activities may be subject to greater credit and compliance risks than are found in more well-developed jurisdictions. AEB continually monitors its exposures in such jurisdictions, and regularly evaluates its client base to identify potential legal risks as a result of clients’ use of AEB’s banking services.

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Competition – Banking Services

The banking services of AEB are subject to vigorous competition everywhere AEB operates. Competitors include local and international banks whose assets often exceed those of AEB, other financial institutions and, in certain cases, governmental agencies.

Regulation – Banking Services

American Express Banking Corp. (“AEBC”) is a New York investment company organized under Article XII of the New York Banking Law and is a wholly owned direct subsidiary of American Express. American Express Bank Ltd. (“AEBL”) is a wholly owned direct subsidiary of AEBC. AEBC, AEBL and AEBL’s global network of offices and subsidiaries are subject to continuous supervision and examination by the New York State Banking Department (“NYSBD”) pursuant to the New York Banking Law. AEBC does not directly engage in banking activities. AEBL’s branches, representative offices and subsidiaries are licensed and regulated in the jurisdictions in which they do business and are subject to the same local requirements as other competitors that have the same license.

Since AEBC and AEBL do not do business in the United States, except as may be incidental to their activities outside the United States, our affiliation with AEBC and AEBL does not require us to register as a bank holding company under Regulation Y promulgated by the Board of Governors of the Federal Reserve System (“Federal Reserve Board”). AEBC and AEBL are not members of the Federal Reserve System, are not subject to supervision by the FDIC, and are not subject to any of the restrictions imposed by the Competitive Equality Banking Act of 1987 other than anti-tying rules with respect to transactions involving products and services of certain of its affiliates. AEBC and AEBL are not financial holding companies under the Gramm-Leach-Bliley Act.

The NYSBD requires AEBC, on a consolidated basis, to monitor its financial condition and maintain risk-based and leverage capital in accordance with minimum thresholds established by the NYSBD. At year-end 2006, AEB had Tier One, Total and Leverage capital (as those terms are defined under the Federal Reserve Board’s risk-based capital guidelines) that exceeded the minimum standards established by the NYSBD. Additionally, AEB is not required to comply on a consolidated basis with the Advanced Internal Ratings Based Approach incorporated in the Basel II Capital Accord Framework published in June, 2004. AEB monitors developments with respect to the implementation of the Basel II Capital Accord in jurisdictions where its branch and subsidiary network is located.

In recent years, U.S. and foreign regulatory authorities, together with international organizations, have raised increasing concerns over the ability of criminal organizations and corrupt persons to use global financial intermediaries to facilitate money laundering. In the United States, the Secretary of the Treasury has issued regulations pursuant to the Patriot Act that specifically impact certain money laundering prevention activities of entities involved, as AEBL is, in correspondent and private banking activities. Compliance efforts to combat money laundering remain a high priority for AEBL, and it has increased its efforts to address evolving regulatory and supervisory standards and requirements in jurisdictions in which it does business.

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CORPORATE & OTHER

Corporate and Other includes American Express Publishing. We also discuss information relevant to the Company as a whole in this section.

American Express Publishing

Through American Express Publishing, we publish luxury lifestyle magazines such as Travel+Leisure®, T+L Family, a supplement to Travel+Leisure, T+L Golf®, Food & Wine® and Departures®; travel resources such as SkyGuide®; business resources such as the American Express Appointment Book and SkyGuide Executive Travel, a business traveler supplement; a variety of general interest, cooking, travel, wine, financial and time management books; branded membership services; a growing roster of international magazine editions; as well as directly sold and licensed products. American Express Publishing also has a custom publishing group and is expanding its service-driven Web sites such as: travelandleisure.com, foodandwine.com, departures.com, tlgolf.com, tlfamily.com and eskyguide.com. We have an agreement with Time Inc. under which it manages our publishing business, and we share profits relating to this business.

Service and Technology Infrastructure

We continue to make significant investments, both in the United States and internationally, in our Card systems and infrastructure to allow faster introduction and greater customization of products. We also are using technology to develop and improve our service capabilities to continue to deliver a high quality customer experience. For example, we maintain a service delivery platform that our employees use in the Card business to support a variety of customer servicing and account management activities such as account maintenance, updating of Cardmember information, the addition of new Cards to an account and resolving customer satisfaction issues. In international markets, we are building flexibility and enhancing our global platforms and capabilities, such as in revolving credit.

We continue to leverage the Internet to lower costs, improve service quality and enhance our business model. During 2006, we broadened our focus to include opportunities to use the Internet to drive revenue and build our brand, while continuing to focus on migrating transaction volumes at lower costs. We now have more online interactions with U.S. customers than we do by telephone or in person.

At year-end, customers had enrolled approximately 21 million Cards globally in our “Manage Your Card Account Service.” This service enables Cardmembers to review and pay their American Express bills electronically, view and service their Membership Rewards program accounts and conduct various other functions quickly and securely online. We now have an online presence in 62 markets around the world, including GNS markets.

We continue to devote substantial resources to our technology platform to ensure the highest level of data integrity, security and privacy. Also, in 2006, we and several other card networks formed PCI Security Standards Council, LLC, an independent standards-setting

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organization that will manage the evolution of the Payment Card Industry (PCI) Data Security Standard. (For a discussion of this organization, see the "Global Network Services" section above.)

In 2002, we outsourced most of our technology operations work to IBM. This arrangement, which has a seven-year term with options to extend, enables us to benefit from IBM’s expertise while lowering our information technology costs. IBM is responsible for managing most of our day-to-day technology operations functions, including mainframe, midrange and desktop systems; web hosting; database administration; help desk services and data center operations. Our internal IT organization continues to retain the Company’s technology competencies, including information technology strategy, information security, managing strategic relationships with technologies’ partners, developing and maintaining applications and databases and managing the technology portfolios of our businesses.

Regulation – General

Most aspects of our business are subject to rigorous regulation by U.S. Federal and state regulatory agencies and securities exchanges and by non-U.S. government agencies or regulatory bodies and securities exchanges. Certain of our public disclosure, internal control environment and corporate governance principles are subject to the Sarbanes-Oxley Act of 2002 and related regulations and rules of the SEC and the New York Stock Exchange, Inc. New laws or regulations or changes to existing laws and regulations (including changes in interpretation or enforcement) could materially adversely affect our financial condition or results of operations. As a global financial institution, to the extent that different regulatory systems impose overlapping or inconsistent requirements on the conduct of our business, we face complexity and additional costs in our compliance efforts.

We use information about our customers to develop and make available relevant, personalized products and services. Our customers are given choices about how we use and disclose their information, and we give them notice regarding the measures we take to safeguard this information. Regulatory activity in the areas of privacy and data protection continues to increase worldwide, spurred by advancements in technology and related concerns about the rapid and widespread dissemination and use of information. As noted above, as part of our efforts to enhance payment account data security, in 2006, we and Discover Financial Services, JCB, MasterCard Worldwide and Visa International formed the PCI Security Standards Council, an open global forum for the ongoing development, enhancement, storage, dissemination and implementation of security standards for account data protection throughout the transaction process.

The Gramm-Leach-Bliley Act (“GLBA”) became effective on July 1, 2001. GLBA provides for disclosure of a financial institution’s privacy policies and practices and affords customers the right to “opt out” of the institution’s disclosure of their personal financial information to unaffiliated third parties (with limited exceptions). This legislation does not preempt state laws that afford greater privacy protections to consumers, and several states have adopted such legislation. For example, in 2003 California enacted that state’s Financial Information Privacy Act. We continue our efforts to safeguard the data entrusted to us in

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accordance with applicable law and our internal data protection policies, including taking steps to reduce the potential for identity theft, while seeking to collect and use data properly to achieve our business objectives.

The Fair Credit Reporting Act of 1970 regulates the disclosure of consumer credit reports by consumer reporting agencies and the use of consumer credit report information by banks and other companies. FCRA was significantly amended by the enactment in December 2003 of the Fair and Accurate Credit Transactions Act (the “FACT Act”). The FACT Act requires any company that receives information concerning a consumer from an affiliate to permit the consumer to opt out from having that information used to market the company’s products to the consumer. The FACT Act further amends the FCRA by adding several new provisions designed to prevent or decrease identity theft and to improve the accuracy of consumer credit information. New duties are imposed on both consumer reporting agencies and on businesses that furnish or use information contained in consumer credit reports. For example, a furnisher of information is required to implement procedures to prevent the reporting of any information that it learns is the result of identity theft. Also, if a consumer disputes the accuracy of information provided to a consumer reporting agency, the furnisher of that information must conduct an investigation and respond to the consumer in a timely fashion. The FACT Act also requires grantors of credit that use consumer credit report information in making a determination to offer a borrower credit on terms that are “materially less favorable” than the terms offered to most of the lender’s other customers to notify the borrower that the terms are based on a consumer credit report. In such a case the borrower is entitled to receive a free copy of the report from the consumer reporting agency. Grantors of credit using pre-screened consumer credit report information in credit solicitations are also required to include an enhanced notice to consumers that they have the right to opt out from receiving further pre-screened offers of credit. The enactment and implementation of the FACT Act has not had a significant impact on our business or practices.

The federal fiscal year 2007 Defense Authorization Act includes a provision (often referred to as the “Talent Amendment”) aimed at preventing abuses of payday lending programs marketed to members of the U.S. military services. This provision is broadly worded and could be interpreted to impose a number of new regulatory requirements, on lending products that may be marketed to members of the armed forces. The Department of Defense has primary authority for making the rules under which this provision would be implemented. The Company is working with industry groups to urge the Department of Defense to craft these rules in a manner that will carry out the provision’s purpose of curbing abuses in payday lending without imposing undue regulation on lending products.

In the United States, the Patriot Act was enacted in October 2001 in the wake of the September 11, 2001 terrorist attacks. The Patriot Act substantially broadened existing anti- money laundering legislation and the extraterritorial jurisdiction of the United States. The Patriot Act contains a wide variety of provisions aimed at fighting terrorism and money laundering, including provisions aimed at impeding terrorists’ ability to access and move funds used in support of terrorist activities. Among other things, the Patriot Act requires federal regulators, led by the Secretary of the Treasury, to regulate or take other steps to require financial institutions to establish anti-money laundering programs that meet certain standards, including expanded reporting and enhanced information gathering and recordkeeping requirements. While

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American Express has long maintained anti-money laundering programs in our businesses, the Secretary of the Treasury has issued regulations under the Patriot Act applicable to certain of our business activities conducted within AEB, TRS and their affiliates, prescribing minimum standards for such anti-money laundering programs, and we have enhanced existing programs and developed and implemented new ones in response to these new regulations. For example, in April 2002, the U.S. Secretary of the Treasury issued regulations applicable to operators of credit card networks (such as VISA, MasterCard, Diners Club, Discover and American Express) that would require credit card networks to have risk-based programs to screen institutions that are licensed to issue cards or acquire merchants on their networks. As a result, we developed and implemented a program for our GNS business. We have also developed and implemented a Customer Identification Program applicable to many of our businesses, and we have enhanced our Know Your Customer and Enhanced Due Diligence programs in others. We intend to take steps to comply with any additional regulations that are adopted. In addition, we will take steps to comply with anti-money laundering initiatives adopted in other jurisdictions in which we conduct business.

We have significant operations in the European Union, including a number of regulated businesses. We monitor developments in EU legislation, as well as in the other markets in which we operate, to ensure that we are in a position to comply with all applicable legal requirements, including European Union directives applicable to credit institutions, insurance intermediaries and other financial institutions.

FOREIGN OPERATIONS

We derive a significant portion of our revenues from the use of our Card products, Travelers Cheques, travel and other financial products and services in countries outside the United States and continue to broaden the use of these products and services outside the United States. (For a discussion of our revenue by geographic region, see Note 19 to our Consolidated Financial Statements, which you can find on pages 106-109 of our 2006 Annual Report to Shareholders and which is incorporated herein by reference.) Our revenues can be affected by political and economic conditions in these countries (including the availability of foreign exchange for the payment by the local Card issuer of obligations arising out of local Cardmembers’ spending outside such country, for the payment of Card bills by Cardmembers who are billed in other than their local currency, and for the remittance of the proceeds of Travelers Cheque sales). Substantial and sudden devaluation of local Cardmembers’ currency can also affect their ability to make payments to the local issuer of the Card in connection with spending outside the local country. The majority of AEB’s revenues are derived from business conducted in countries outside the United States. Some of the risks attendant to those operations include currency fluctuations and changes in political, economic and legal environments in each such country.

As a result of our foreign operations, we are exposed to the possibility that, because of foreign exchange rate fluctuations, assets and liabilities denominated in currencies other than the U.S. dollar may be realized in amounts greater or less than the U.S. dollar amounts at which they are currently recorded in our Consolidated Financial Statements. Examples of transactions in which this may occur include the purchase by Cardmembers of goods and services in a currency

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other than the currency in which they are billed; the sale in one currency of a Travelers Cheque denominated in a second currency; foreign exchange positions held by AEB as a consequence of its client-related foreign exchange trading operations; and, in most instances, investments in foreign operations. These risks, unless properly monitored and managed, could have an adverse effect on our operations. For more information on how we manage risk relating to foreign exchange, see “Risk Management – Market Risk Management Process” on pages 51-52 of our 2006 Annual Report to Shareholders, which information is incorporated herein by reference.

SEGMENT INFORMATION AND CLASSES OF SIMILAR SERVICES

You can find information regarding the Company’s reportable operating segments, geographic operations and classes of similar services in Note 19 to the Consolidated Financial Statements of the Company, which appears on pages 106-108 of the Company’s 2006 Annual Report to Shareholders, which Note is incorporated herein by reference.

EXECUTIVE OFFICERS OF THE COMPANY

Set forth below is a list of all our executive officers as of March 1, 2007. None of our executive officers has any family relationship with any other executive officer, and none of our executive officers became an officer pursuant to any arrangement or understanding with any other person. Each executive officer has been elected to serve until the next annual election of officers or until his or her successor is elected and qualified. Each officer’s age is indicated by the number in parentheses next to his or her name.

KENNETH I. CHENAULT - Chairman and Chief Executive Officer; Chairman and Chief Executive Officer, American Express Travel Related Services Company, Inc.

Mr. Chenault (55) has been Chairman since April 2001 and Chief Executive Officer since January 2001. Prior thereto he had been President and Chief Operating Officer of the Company since February 1997. He has also been Chairman of TRS since April 2001 and Chief Executive Officer of TRS since February 1997.

L. KEVIN COX - Executive Vice President, Human Resources

Mr. Cox (43) has been Executive Vice President, Human Resources of the Company since April 2005. Prior thereto he had been Executive Vice President of The Pepsi Bottling Group since September 2004. Prior thereto, he had been Senior Vice President, Human Resources of such company since March 1999.

EDWARD P. GILLIGAN - Group President, American Express International & Global Corporate Services

Mr. Gilligan (47) has been Group President, American Express International & Global Corporate Services since July 2005. Prior thereto, he had been Group President, Global

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Corporate Services since June 2000 and Group President, Global Corporate Services & International Payments, since July 2003.

JOHN D. HAYES - Executive Vice President, Global Advertising and Brand Management and Chief Marketing Officer

Mr. Hayes (52) has been Executive Vice President, Global Advertising and Brand Management since May 1995 and Chief Marketing Officer of the Company since August 2003.

DANIEL T. HENRY - Executive Vice President and acting Chief Financial Officer

Mr. Henry (57) has been Executive Vice President and acting Chief Financial Officer of the Company since February 2007. Prior thereto, he had been Executive Vice President and Chief Financial Officer, U.S. Consumer, Small Business and Merchant Services since October 2005 and Executive Vice President and Chief Financial Officer, U.S. Consumer and Small Business Services since August 2000.

ALFRED F. KELLY, JR. - Group President, Consumer, Small Business and Merchant Services

Mr. Kelly (48) has been Group President, Consumer, Small Business and Merchant Services since October 2005. Prior thereto, he had been Group President, U.S. Consumer and Small Business Services since June 2000.

LOUISE M. PARENT - Executive Vice President and General Counsel

Ms. Parent (56) has been Executive Vice President and General Counsel since May 1993.

THOMAS SCHICK - Executive Vice President, Corporate Affairs and Communications

Mr. Schick (60) has been Executive Vice President, Corporate Affairs and Communications since March 1993.

STEPHEN SQUERI - Executive Vice President and Chief Information Officer

Mr. Squeri (47) has been Executive Vice President and Chief Information Officer since May 2005. Prior thereto, he had been President, Global Commercial Card – Global Corporate Services since January 2002 and President, Establishment Services – United States and Canada, from July 2000 through December 2001.

EMPLOYEES

We had approximately 65,400 employees on December 31, 2006.

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ITEM 1A. RISK FACTORS

This section highlights specific risks that could affect our Company and its businesses. You should carefully consider each of the following risks and all of the other information set forth in this Annual Report on Form 10-K. Based on the information currently known to us, we believe that the following information identifies the most significant risk factors affecting our Company. However, the risks and uncertainties our Company faces are not limited to those described below. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business.

If any of the following risks and uncertainties develops into actual events or the circumstances described in the risks and uncertainties occur, these events or circumstances could have a material adverse effect on our business, financial condition or results of operations. These events could also have a negative effect on the trading price of our securities.

We face increasingly intense competitive pressure which may impact the prices we charge merchants who accept our cards for payment for goods and services.

Unlike our competitors in the payments industry that rely on high revolving credit balances to drive profits, our business model is focused on Cardmember spending. Discount revenue, which represents fees charged to merchants when Cardmembers use their Cards to purchase goods and services on our network, is primarily driven by billed business volumes and is our largest single revenue source. In recent years, we have been under market pressure to reduce merchant discount rates and undertake other repricing initiatives. This pressure arises, in part, due to the regulatory pressure on our competitors outside the United States, which has been increasing. If we continue to experience a decline in the average merchant discount rate we charge merchants or are unable to sustain premium merchant discount rates on our Cards without experiencing overall volume growth or an increase in merchant coverage, our revenues and profitability could be materially and adversely affected.

We may not be able to increase consumer and business spending and borrowing on our payment services products or manage the costs of our Cardmember benefits intended to stimulate such use.

Our business is characterized by the high level of spending by our Cardmembers. Increasing consumer and business spending and borrowing on our payment services products, particularly credit and charge Cards and Travelers Cheques and other prepaid products, and growth in Card lending balances, depend in part on our ability to develop and issue new or enhanced Card and prepaid products and increase revenues from such products. It also depends on our ability to attract new Cardmembers, reduce Cardmember attrition, increase merchant coverage, and capture a greater share of customers’ total spending on Cards issued on our network, both in the United States and in our international operations. One of the ways in which we attract new Cardmembers is through our Membership Rewards program, as well as other Cardmember benefits. We may not be able to cost effectively manage and expand Cardmember benefits, including containing the growth of marketing, promotion and rewards expenses and Cardmember services expenses. If we are not successful in increasing consumer and business

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spending or in managing the costs of our Cardmember benefits, our revenues and profitability could be negatively affected.

Our brand and reputation are key assets of our Company and our business may be affected by how we are perceived in the marketplace.

Our brand and its attributes are key assets of the Company. Our ability to attract and retain consumer Cardmembers and corporate clients is highly dependent upon the external perceptions of our level of service, business practices and financial condition. Negative perceptions or publicity regarding these matters could damage our reputation among existing and potential Cardmembers and corporate clients, which could make it difficult for us to attract new Cardmembers and maintain existing ones. Adverse developments with respect to our industry may also, by association, negatively impact our reputation, or result in greater regulatory or legislative scrutiny. Although we monitor developments for areas of potential risk to our reputation and brand, negative perceptions or publicity could materially and adversely affect our revenues and profitability.

An increase in account data breaches and fraudulent activity using our Cards could lead to reputational damage to our brand and could reduce the use and acceptance of our charge and credit Cards.

We and other third parties store Cardmember account information in connection with our charge and credit Cards. Criminals are using increasingly sophisticated methods to capture various types of information relating to Cardmembers’ accounts, including Membership Rewards accounts, to engage in illegal activities such as fraud and identity theft. As outsourcing and specialization become a more acceptable way of doing business in the payments industry, there are more third parties involved in processing transactions using our Cards. If data breaches or fraud levels involving our Cards were to rise, it could lead to regulatory intervention (such as mandatory card reissuance) and reputational and financial damage to our brand, which could reduce the use and acceptance of our Cards, and have a material adverse impact on our business.

Our reengineering and other cost control initiatives may not prove successful and we may not realize all or a significant portion of the benefits that we intended.

We have regularly undertaken, and are currently considering undertaking, a variety of efforts to reengineer our business operations in order to achieve cost savings and other benefits (including the reinvestment of such savings in key areas such as marketing, promotion and rewards), enhance revenue-generating opportunities and improve our operating expense to revenue ratio both in the short-term and over time. These efforts include cost management, structural and strategic measures such as vendor, process, facilities and operations consolidation, outsourcing functions (including, among others, technologies operations), relocating certain functions to lower cost overseas locations, moving internal and external functions to the Internet to save costs and planned staff reductions relating to certain of these reengineering actions. If we do not successfully achieve these efforts in a timely manner or if we are not able to capitalize on these efforts, we may not realize all or a significant portion of the benefits that we intended.

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Failure to achieve these benefits could have a negative effect on our financial condition and results of operations.

We have agreements with business partners in a variety of industries, including the airline industry, that represent a significant portion of our billed business. We are exposed to the risk of downturns in these industries, including bankruptcies of our partners, and the possible obligation to make payments to our partners.

In the ordinary course of our business we enter into different types of contractual arrangements with business partners in a variety of industries. For example, we have partnered with Costco to offer cobranded cards for consumers and small businesses, and through our Membership Rewards program we have partnered with businesses in many industries, most notably the airline industry, to offer benefits to Cardmember participants. The airline industry represents a significant portion of our billed business and in recent years has undergone bankruptcies, restructurings and other similar events. In particular, we are exposed to risk under our agreements with Delta Air Lines, which were restructured in connection with Delta’s filing for protection under Chapter 11 of the Bankruptcy Code. For additional information relating to the agreements with Delta, see “Financial Review – Airline Industry Matters” on page 60 of our 2006 Annual Report to Shareholders. In addition, under some types of these contractual arrangements, upon the occurrence of certain triggering events, we may be obligated to make payments to certain cobrand partners, merchants, vendors and customers. If we are not able to effectively manage the triggering events, we could unexpectedly have to make payments to these partners, which could have a negative effect on our financial condition and results of operations. We are also exposed to risk if we are not able to effectively manage bankruptcies, restructurings, consolidations and other similar events that may occur in the airline industry or any other industry representing a significant portion of our billed business, including any potential negative effects on particular card products and services (and billed business generally) that could result from the actual or perceived weakness of key business partners in such industries.

Our risk management policies and procedures may not be effective.

We must effectively manage credit risk related to consumer debt, business loans, merchant bankruptcies and other credit trends and the rate of bankruptcies, which can affect spending on card products, debt payments by individual and corporate customers and businesses that accept our card products. Credit risk is the risk of loss from obligor or counterparty default. We are exposed to both consumer credit risk, principally from Cardmember receivables, and our other consumer lending activities and institutional credit risk from merchants and GNS partners. While consumer credit risk is more closely linked to general economic conditions rather than borrower-specific events like institutional credit risk, both expose us to a risk of loss. Third parties may default on their obligations to us due to bankruptcy, lack of liquidity, operational failure or other reasons. Country, regional and political risks are components of credit risk. Rising delinquencies and rising rates of bankruptcy are often precursors of future write-offs and may require us to increase our reserve for loan losses. Higher write-off rates and an increase in our reserve for loan losses may adversely affect our profitability and the performance of our securitizations, and may increase our cost of funds.

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Although we make estimates to provide for credit losses in our outstanding portfolio of loans and receivables, these estimates may not be accurate. In addition, the information that we use in managing our credit risk may be inaccurate or incomplete. Although we regularly review our credit exposure to specific clients and counterparties and to specific industries, countries and regions that we believe may present credit concerns, default risk may arise from events or circumstances that are difficult to foresee or detect, such as fraud. We may also fail to receive full information with respect to the credit risks of our customers.

We must also effectively manage market risk to which we are exposed. Market risk represents the loss in value of portfolios and financial instruments due to adverse changes in market variables. We are exposed to market risk from interest rates in our Card business. Changes in the interest rates at which we borrow and lend money affect the value of our assets and liabilities. If the rate of interest we pay on our borrowings increases more than the rate of interest we earn on our loans, our net finance charge revenue, and consequently our net income, could fall.

We must also accurately estimate the fair value of the assets in our investment portfolio and, in particular, those investments that are not readily marketable, including the valuation of the interest-only strip (commonly referred to as the I/O strip) arising from our securitization of charge and credit Card receivables.

Finally, we must also manage the operational risks to which we are exposed. We consider operational risk to be the risk of not achieving our business objectives due to failed processes, people or information systems, or from the external environment, such as natural disasters. Operational risks include the risk that we may not accurately estimate the expense provision for the cost of our Membership Rewards program, as well as the risk that we are unable to manage a downturn in our businesses and/or negative changes in our subsidiaries’ credit ratings, which could result in contingent payments under contracts, decreased liquidity and higher borrowing costs.

Although we have devoted significant resources to develop our risk management policies and procedures and expect to continue to do so in the future, our hedging strategies and other risk management techniques may not be fully effective. See “Financial Review – Risk Management” on pages 49-53 of our 2006 Annual Report to Shareholders for a discussion of the policies and procedures we use to identify, monitor and manage the risks we assume in conducting our businesses. Management of credit, market and operational risk requires, among other things, policies and procedures to record properly and verify a large number of transactions and events, and these policies and procedures may not be fully effective.

Adverse currency fluctuations and foreign exchange controls could decrease revenue we receive from our international operations.

During 2006, over 30% of our revenue was generated from activities outside the United States. We are exposed to foreign exchange risk from our international operations, and some of the revenue we generate outside the United States is subject to unpredictable and indeterminate fluctuations if the values of other currencies change relative to the U.S. dollar. Resulting

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exchange gains and losses are included in our net income. Furthermore, we may become subject to exchange control regulations that might restrict or prohibit the conversion of our other revenue currencies into U.S. dollars. The occurrence of any of these events or circumstances could decrease the revenues we receive from our international operations and have a material adverse effect on our business.

Our access to financing, including securitizations, may be limited.

In general, the amount, type and cost of our funding, including financing from other financial institutions and the capital markets, directly impacts our expense in operating our business and growing our assets and therefore, can positively or negatively affect our financial results.

A number of factors could make such financing more difficult, more expensive or unavailable on any terms both domestically and internationally (where funding transactions may be on terms more or less favorable than in the United States), including, but not limited to, financial results and losses, changes within our organization, specific events that adversely impact our reputation, changes in the activities of our business partners, disruptions in the capital markets, specific events that adversely impact the financial services industry, counter-party availability, changes affecting our assets, our corporate and regulatory structure, interest rate fluctuations, ratings agencies’ actions, general economic conditions and the legal, regulatory, accounting and tax environments governing our funding transactions. In addition, our ability to raise funds is strongly affected by the general state of the United States and world economies, and may become increasingly difficult due to economic and other factors. Also, we compete for funding with other financial institutions, some of which are publicly traded. Competition from these institutions may increase our cost of funds.

In addition, we periodically securitize Cardmember receivables and loans arising from our Card business. Securitization involves the legal sale of beneficial interests in Cardmember receivables and loan balances to a trust, which in turn issues securities to third-party investors collateralized by the transferred receivables and loans, and our receipt of the proceeds from the issuance of such securities. Although the markets for securitized credit and charge card receivables and loans is large and well-established, if these markets experience difficulties, we may be unable to securitize our receivables or to do so at favorable pricing levels. If we were unable to continue to securitize our loan receivables at desired levels, we would use alternative funding sources to meet our liquidity needs. If we were unable to find cost-effective and stable alternatives, it could negatively impact our liquidity and potentially subject us to certain risks. These risks would include an increase in our cost of funds, an increase in the allowance for loan losses and the provision for possible credit losses as more loans would remain on our consolidated balance sheet, and lower loan growth.

In addition, the occurrence of certain events may cause the securitization transactions to amortize earlier than scheduled, which would accelerate the need for an alternate source of funding.

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For a further discussion of our liquidity and funding needs, see “Financial Review – Funding Strategy” on pages 43-48 in the 2006 Annual Report to Shareholders.

If we are not able to invest successfully in, and compete at the leading edge of, technological developments across all our businesses, our revenue and profitability could be negatively affected.

Our industry is subject to rapid and significant technological changes. In order to compete in our industry, we need to continue to invest in technologies across all areas of our business, including in transaction processing, data management, customer interactions and communications, travel reservations systems, prepaid products, alternative payment mechanisms and risk management and compliance systems. We rely in part on third parties, including some of our competitors and potential competitors, for the development of and access to new technologies. We expect that new services and technologies applicable to the payments industry will continue to emerge, and these new services and technologies may be superior to, or render obsolete, the technologies we currently use in our Cards and networks. In addition, our ability to adopt new services and technologies that we develop may be inhibited by a need for industry- wide standards or by resistance from Cardmembers or merchants to such changes in addition to patent rights held by competitors or others. Our future success will depend, in part, on our ability to develop or adapt to technological changes and evolving industry standards.

Our operating results may suffer because of substantial and increasingly intense competition worldwide in the payments industry.

The payments industry is highly competitive and includes, in addition to credit card networks, evolving alternative payment mechanisms and systems. Some of our competitors have developed, or may develop, substantially greater financial and other resources than we have, may offer a wider range of programs and services than we offer or may use more effective advertising and marketing strategies to achieve broader brand recognition or merchant acceptance than we have. We may not continue to be able to compete effectively against these threats. In addition, our competitors may be more efficient in introducing innovative products, programs and services than we are. As a result, our revenue or profitability may decline.

Banks, card issuers and card network operators generally are the subject of increasing global regulatory focus, which may impose costly new compliance burdens on our company and lead to decreased transaction volumes through our network.

We are subject to regulations that affect banks and the payments industry in the many countries in which our charge and credit Cards are used and where we conduct banking activities. In particular, we are subject to numerous regulations applicable to financial institutions in the United States and abroad. We are also subject to regulations as a provider of services to financial institutions. Regulation of the payments industry has increased significantly in recent years. For example, we are subject to the regulatory requirements of the Patriot Act, which substantially broadened existing anti-money laundering legislation and the extraterritorial jurisdiction of the United States. The Patriot Act requires us to create and implement comprehensive anti-money laundering programs that meet certain standards, including expanded

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reporting and enhanced information gathering and record-keeping requirements, as well as to perform due diligence on the third party institutions that issue Cards and/or acquire merchants on our network. Increased regulatory focus in this area could result in additional obligations or restrictions with respect to the types of products and services that we may offer to consumers, the countries in which our charge and credit Cards may be used and where we provide private and correspondent banking services, and the types of cardholders and merchants who can obtain or accept our charge and credit Cards.

The U.S. Congress is also presently considering legislative initiatives in the areas of Internet gambling, Internet prescription drug purchases and copyright and infringement, among others, that could impose additional compliance burdens on our Company, for example, imposing requirements aimed at preventing the use of payment cards to unlawfully purchase prescription drugs over the Internet. Many states are also considering a variety of similar legislation. Federal and state law enforcement authorities have also contacted payment companies concerning these issues. If implemented, these initiatives may require us to monitor, filter, restrict, or otherwise oversee various categories of charge and credit card transactions, thereby increasing our costs or decreasing our transaction volumes. Various regulatory agencies are also considering regulations covering identity theft, account management guidelines, disclosure rules, security, and marketing that would impact us directly, in part due to increased scrutiny of our underwriting standards. These new requirements may restrict our ability to issue charge and credit cards or partner with other financial institutions, which could decrease our transaction volumes. In some circumstances, new regulations could have the effect of limiting our ability to offer new types of charge or credit cards or restricting our ability to offer existing Cards, such as stored value cards, which could materially and adversely reduce our revenues and revenue growth.

In the United States, the Board of Governors of the Federal Reserve System and various Federal Reserve Banks have been following developments on interchange and have held several conferences focused on credit card interchange rates. While the Federal Reserve has expressed interest in monitoring this issue, it has not indicated the need to regulate interchange rates in the United States. In Congress, there have been several hearings on VISA and MasterCard interchange over the last year. During 2006, there were also a number of bills proposed in individual state legislatures seeking to impose caps on credit card interchange or to prohibit card companies from charging merchant discount on the state tax portion of credit card purchases. None of those bills were enacted. It is expected that Congressional hearings and similar proposed state legislation will continue during 2007.

Regulators and Congress have also increased their scrutiny of our industry’s fees to its customers. Any legislative or regulatory restrictions on our ability to price our services freely could materially and adversely affect our transaction volume and revenues.

Increased regulatory focus on our Company, such as in connection with the matters discussed above, may increase our compliance costs or result in a reduction of transactions processed on our networks, which could materially and adversely impact our financial performance.

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Existing and proposed regulation in the areas of consumer privacy and data use and security could decrease the number of charge and credit cards issued and could increase our costs.

We are also subject to regulations related to privacy and data use and security in the jurisdictions in which we do business, and we could be negatively impacted by these regulations. For example, in the United States, we are subject to the Federal Trade Commission’s information safeguards rule under the Gramm-Leach-Bliley Act. The rule requires that each financial institution develop, implement and maintain a written, comprehensive information security program containing safeguards that are appropriate to the financial institution’s size and complexity, the nature and scope of the financial institution’s activities, and the sensitivity of any customer information at issue. The heightened legislative and regulatory focus on data security, including requiring consumer notification in the event of a data breach, continues. In the United States, there are a number of bills pending in Congress and there have been several Congressional hearings to address these issues. Congress will likely consider data security/data breach legislation in 2007 that, if implemented, could affect our Company.

In addition, approximately 34 states, Puerto Rico and the District of Columbia have enacted security breach legislation, requiring varying levels of consumer notification in the event of a security breach, and several other states are considering similar legislation. In 1995, the European Parliament and Council passed European Directive 95/46/EC on the protection of individuals with regard to the processing of personal data and on the free movement of such data (commonly referred to as the Data Protection Directive), which obligates the controller of an individual’s personal data to take the necessary technical and organizational measures to protect personal data. The Data Protection Directive has been implemented through local laws regulating data protection in European Union member states. Any additional regulations in these areas may also increase our costs to comply with such regulations, which could materially and adversely affect our profitability.

Global economic, political and other conditions may adversely affect trends in consumer spending and in travel.

Our business depends heavily upon the overall level of spending using our credit and charge Cards, and we are not insulated from the effects of economic cycles. A sustained deterioration in general economic conditions, particularly in the United States or Europe, or increases in interest rates in key countries in which we operate, may adversely affect our financial performance by reducing the number or average purchase amount of transactions involving our charge and credit Cards and result in increasing delinquencies and credit losses. Political or economic instability in certain regions or countries could also affect our commercial or other lending activities, among other businesses, or result in restrictions on convertibility of certain currencies. In addition, our travel network may be adversely affected by world geopolitical and other conditions. Travel expenditures are sensitive to business and personal discretionary spending levels and tend to decline during general economic downturns.

Terrorist attacks, natural disasters or other catastrophic events may have a negative effect on our business. Because of our proximity to the World Trade Center, our headquarters were damaged as a result of the terrorist attacks of September 11, 2001. Similar events or other

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disasters or catastrophic events in the future could have a negative effect on our businesses and infrastructure, including our information technology systems. Because we derive a portion of our revenues from travel-related spending, our business will be sensitive to safety concerns, and thus may decline during periods in which travelers become concerned about safety issues or when travel might involve health-related risks.

If our global network systems are disrupted or we are unable to process transactions efficiently or at all, our revenue or profitability would be materially reduced.

Our transaction authorization, clearing and settlement systems may experience service interruptions as a result of fire, natural disasters, power loss, disruptions in long distance or local telecommunications access, fraud, terrorism or accident. A natural disaster or other problem at our facilities could interrupt our services. Additionally, we rely on third-party service providers for the timely transmission of information across our global network. If a service provider fails to provide the communications capacity or services we require, as a result of natural disaster, operational disruption, terrorism or any other reason, the failure could interrupt our services, adversely affect the perception of our brands’ reliability and materially reduce our revenue or profitability.

We rely on third-party providers of various computer systems and other services integral to the operations of our businesses. These third parties may act in ways that could harm our business.

We outsource to third-party providers many of our computer systems and other services that are integral to the operations of our businesses. We are subject to the risk that certain decisions are subject to the control of our third-party service providers and that these decisions may adversely affect our activities. We cannot be certain that our third-party vendors will perform their obligations as expected.

Resolution of our unresolved SEC staff comment may result in a change in the presentation of our reportable operating segments in our financial statements.

Our business is comprised of three reportable operating segments, U.S. Card Services, International Card & Global Commercial Services and Global Network & Merchant Services. In connection with a review of our Annual Report on Form 10-K for the year ended December 31, 2005, the SEC requested certain information regarding the aggregation of our operating segments into the reportable segments identified above. The Company and the SEC are continuing to discuss the Company's segment reporting. If, as a result of these discussions, it is concluded that a different reportable operating segment presentation (including the disaggregation of certain operating segments) is appropriate, we would report our segments differently in our filings with the SEC (although consolidated results would not be impacted). The SEC may also require that we restate segment information that appears in the notes to our consolidated financial statements included in this Annual Report on Form 10-K and file an amendment to this Form 10-K to reflect any such changes to the reportable operating segment presentation.

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Special Note About Forward-Looking Statements

We have made various statements in this report that may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may also be made in our other reports filed with the SEC, in our press releases and in other documents. In addition, from time to time, we, through our management, may make oral forward-looking statements. Forward-looking statements are subject to risks and uncertainties, including those identified above, which could cause actual results to differ materially from such statements. The words “believe,” “expect,” “anticipate,” “optimistic,” “intend,” “plan,” “aim,” “will,” “may,” “should,” “could,” “would,” “likely” and similar expressions are intended to identify forward-looking statements. We caution you that the risk factors described above are not exclusive. There may also be other risks that we are unable to predict at this time that may cause actual results to differ materially from those in forward- looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We undertake no obligation to update publicly or revise any forward-looking statements.

ITEM 1B. UNRESOLVED STAFF COMMENTS

We received comments from the SEC in a letter, dated June 30, 2006, with respect to our Form 10-K for the year ended December 31, 2005. All comments have been resolved with the exception of how we aggregate segment data in our consolidated financial statements under Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information.” As discussed in “Risk Factors” above, the Company and the SEC are continuing to discuss the Company’s segment reporting.

ITEM 2. PROPERTIES

Our principal executive offices are in a 51-story, 2.2 million square foot building located in lower Manhattan. This building, which is on land leased from the Battery Park City Authority for a term expiring in 2069, is one of four office buildings in a complex known as the World Financial Center. We have a 49% ownership interest in the building. Brookfield Financial Properties owns the remaining 51% interest in the building. We also lease space in the building from Brookfield.

Other owned or leased principal locations include: the American Express Service Centers in Fort Lauderdale, Florida; Phoenix, Arizona; Greensboro, North Carolina; and Salt Lake City, Utah; the American Express Data Centers in Phoenix, Arizona and in Minneapolis, Minnesota; the American Express Finance Center in Phoenix, Arizona; and the Amex Canada Inc. headquarters in Markham, Ontario, Canada; and service centers located in Mexico City, Mexico; Sydney, Australia; Gurgaon, India and Brighton, United Kingdom.

In recent years we have engaged in several sale-leaseback transactions pursuant to which we sold various owned properties to third parties and leased back the properties under long-term net leases whereby each American Express entity that leases back the property is responsible for all costs and expenses relating to the property (including maintenance, repair, utilities, operating

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expenses and insurance costs) in addition to annual rent. The sale leaseback transactions have not materially impacted our financial results in any year. Gains resulting from completed sale and leaseback transactions are amortized over the initial ten-year lease periods. We continue to consider whether sale-leaseback transactions are appropriate for other properties that we currently own.

In February 2000, we entered into a ten-year agreement with CBRE Real Estate Services, Inc., formerly known as Trammell Crow Corporate Services, Inc., for facilities, project and transaction management and other related services. The agreement covers North and South America and parts of Europe and Asia.

Generally, we and our subsidiaries lease the premises we occupy in other locations. We believe that the facilities we own or occupy suit our needs and are well maintained.

ITEM 3. LEGAL PROCEEDINGS

The Company and its subsidiaries are involved in a number of legal and arbitration proceedings, including class actions, concerning matters arising in connection with the conduct of their respective business activities. The Company believes it has meritorious defenses to each of these actions and intends to defend them vigorously. In the course of its business, the Company and its subsidiaries are also subject to governmental examinations, information gathering requests, subpoenas, inquiries and investigations. The Company believes that it is not a party to, nor are any of its properties the subject of, any pending legal, arbitration, regulatory, tax or investigative proceedings that would have a material adverse effect on the Company's consolidated financial condition, results of operations or liquidity. However, it is possible that the outcome of any such proceeding could have a material impact on results of operations in any particular reporting period as the proceedings are resolved. Certain legal proceedings involving the Company are described below.

Corporate Matters

Beginning in mid-July 2002, 12 putative class action lawsuits were filed in the United States District Court for the Southern District of New York. In October 2002, these cases were consolidated under the caption In re American Express Company Securities Litigation. These lawsuits allege violations of the federal securities laws and the common law in connection with alleged misstatements regarding certain investments in high-yield bonds and write-downs in the 2000-2001 timeframe. The purported class covers the period from July 18, 1999 to July 17, 2001. The actions seek unspecified compensatory damages as well as disgorgement, punitive damages, attorneys' fees and costs, and interest. On March 31, 2004, the Court granted the Company's motion to dismiss the lawsuit. Plaintiffs appealed the dismissal to the United States Court of Appeals for the Second Circuit. In August 2006, the Court of Appeals, without expressing any views whatsoever on the merits of the cases, vacated the District Court’s judgment and remanded all claims to the District Court for further proceedings. More particularly, the Court of Appeals reversed the District Court’s ruling that two of the plaintiff’s claims in an amended complaint did not “relate back” to the original complaint and were thus time-barred under the statute of limitations period. As a result, the Court of Appeals decided that

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it was prudent to remand all claims back to the District Court so that plaintiffs could file a new amended complaint. Plaintiffs filed their amended complaint on January 8, 2007. The Company wrote to the Court on February 5, 2007, telling the Court that it intended to file a motion to strike the amended complaint. The Company continues to believe that it has meritorious defenses to the action.

In December 2003, American Express Travel Related Services Company, Inc. was named as a defendant in a shareholder derivative action purportedly filed on behalf of InfoSpace Inc. The action, captioned Dreiling v. American Express Travel Related Services Company, Inc., was filed in the U.S. District Court for the District of Washington. The complaint alleges that the Company violated the "short swing" liability provisions of Section 16(a) of the Securities Exchange Act of 1934, as amended, in connection with its sale of InfoSpace common stock. The plaintiff seeks disgorgement of profits from the sale of the InfoSpace shares, as well as fees and expenses. In June 2004, the Court granted American Express' motion to dismiss the complaint without American Express' ever having answered the complaint. In August 2006, the U.S. Court of Appeals for the Ninth Circuit reinstated the action because of certain unresolved factual disputes. The Company continues to believe that it has meritorious defenses to this action and intends to defend it vigorously.

In January 2006, a purported class action captioned Paula Kritzman, individually and on behalf of all others similarly situated v. American Express Retirement Plan et al. was filed in the U.S. District Court for the Southern District of New York. The plaintiff alleges that when the American Express Retirement Plan (the “AXP Plan”) was amended effective July 1, 1995, to convert from a final average pay formula to a “cash balance” formula for the calculation of benefits, the terms of the amended AXP Plan violated the Employee Retirement Income Security Act, as amended (“ERISA”), in at least the following ways: (i) the AXP Plan violated ERISA’s prohibition on reducing rates of benefit accrual due to the increasing age of a plan participant; (ii) the AXP Plan violated ERISA’s prohibition on forfeiture of accrued benefits; and (iii) the AXP Plan violated ERISA’s present value calculation rules. The plaintiff seeks, among other remedies, injunctive relief entitling the plaintiff and the purported class to benefits that are the greater of (x) the benefits to which the members of the class would have been entitled without regard to the conversion of the benefit payout formula of the AXP Plan to a cash balance formula and (y) the benefits under the AXP Plan with regard to the cash balance formula. The plaintiff also seeks pre- and post-judgment interest and attorneys fees and expenses. The Company has filed a motion with the Court seeking to dismiss the complaint.

In November 2004, the Company filed a lawsuit captioned American Express Travel Related Services Company, Inc. v. VISA USA Inc., MasterCard International, Inc. et al. in the U.S. District Court for the Southern District of New York. The lawsuit seeks unspecified monetary damages against VISA, MasterCard and eight major banks that are or were members of the two card associations for the business lost as a result of the illegal, anticompetitive practices of the card associations that effectively locked the Company out of the bank-issued card business in the United States. The lawsuit follows the U.S. Supreme Court’s October 2004 decision not to hear an appeal from VISA and MasterCard that sought to overturn a lower court ruling that found the two card associations in violation of U.S. antitrust laws. Since filing the action, TRS has voluntarily dismissed its claims against the following bank defendants: Bank of

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America, N.A., Bank of America Corporation (including its subsidiaries Fleet Bank (RI), N.A. and Fleet National Bank), Household Bank, N.A., Household International, Inc. and USAA Federal Savings Bank.

U.S. Card Services and Global Merchant Services Matters

The Company has been named in a number of purported class actions in which the plaintiffs allege an unlawful antitrust tying arrangement between the Company's charge cards, credit cards and debit cards in violation of various state and federal laws, including the following: (i) Cohen Rese Gallery et al. v. American Express Company et al., U.S. District Court for the Northern District of California (filed July 2003); (ii) Italian Colors Restaurant v. American Express Company et al., U.S. District Court for the Northern District of California (filed August 2003); (iii) DRF Jeweler Corp. v. American Express Company et al., U.S. District Court for the Southern District of New York (filed December 2003); (iv) Hayama Inc. v. American Express Company et al., Superior Court of California, Los Angeles County (filed December 2003); (v) Chez Noelle Restaurant v. American Express Company et al., U.S. District Court for the Southern District of New York (filed January 2004); (vi) Mascari Enterprises d/b/a Sound Stations v. American Express Company et al., U.S. District Court for the Southern District of New York (filed January 2004); (vii) Mims Restaurant v. American Express Company et al., U.S. District Court for the Southern District of New York (filed February 2004); and (viii) The Marcus Corporation v. American Express Company et al., U.S. District Court for the Southern District of New York (filed July 2004). The plaintiffs in these actions seek injunctive relief and an unspecified amount of damages. Upon motion to the Court by the Company, the venue of the Cohen Rese and Italian Colors actions was moved to the U.S. District Court for the Southern District of New York (“SDNY”) in December 2003. Each of the above-listed actions (except for Hayama) is now pending in the SDNY, consolidated as “In re American Express Merchants’ Litigation”. On April 30, 2004, the Company filed a motion to dismiss all the actions filed prior to such date that were pending in the SDNY, and on March 15, 2006, such motion was granted, with the Court finding the claims of the plaintiffs to be subject to arbitration. Plaintiffs asked the Court to reconsider its dismissal. That request was denied. The plaintiffs have appealed the Court’s arbitration ruling. In addition, during the pendency of the motion in the SDNY, the Company had asked the California Superior Court hearing the Hayama action referenced above to stay that action pending resolution of such motion. The Company also filed a motion to dismiss the action filed by the Marcus Corporation, which was denied in July 2005. Nonetheless, the Company continues to believe that it has meritorious defenses and will continue to vigorously defend against the Marcus action.

In December 2004, a purported class action captioned National Supermarkets Association, Inc., Mascari Enterprises, Inc. d/b/a Sound Stations, and Bunda Starr Corp. d/b/a Brite Wines and Spirits v. MBNA America Bank, N.A., MBNA Corp., Citibank (South Dakota) N.A. and Citigroup, Incorporated, was filed in the SDNY. The action is a lawsuit related to the antitrust tying actions described in the preceding paragraph. Although the Company is not named as a defendant, the plaintiffs in this action are also plaintiffs in the direct actions against American Express described in the preceding paragraph. This lawsuit alleges that, by agreeing to issue American Express–branded cards, MBNA and Citibank have conspired with the Company in the alleged wrongful tying arrangement described in the preceding paragraph. The

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Company believes this lawsuit is without merit and is contrary to the Department of Justice's successful efforts to render unenforceable Visa's and MasterCard's rules that prevented banks from issuing American Express–branded cards in the United States. The Company also believes that this lawsuit is susceptible to the same defenses available to the Company in the direct actions filed against it, which are described in the preceding paragraph. In the March 15, 2006 decision described in the preceding paragraph, the SDNY denied the Company’s request to intervene in this action and denied the motion of MBNA and Citibank to dismiss the action. The Court did, however, stay the action against MBNA and Citibank pending the arbitration of the claims made against the Company in the actions described in the preceding paragraph.

In August 2005, a purported class action captioned Performance Labs Inc. v. American Express Travel Related Services Company, Inc. ("TRS"), MasterCard International Incorporated, Visa USA, Inc. et al. was filed in the U. S. District Court for the District of New Jersey. The action was then transferred to the U.S. District Court for the Eastern District of New York. The complaint alleged that the Company's policy prohibiting merchants from imposing restrictions on the use of American Express cards that are not imposed equally on other forms of payment violates U.S. antitrust laws. The suit sought injunctive relief. TRS moved to dismiss the complaint. In addition, the Company learned that two additional purported class actions that made allegations similar to those made in the Performance Labs action had also been filed: 518 Restaurant Corp. v. American Express Travel Related Services Company, Inc., MasterCard International Incorporated, Visa USA, Inc. et al. (filed in August 2005 in the United States District Court for the Eastern District of Pennsylvania) and Lepkowski v. American Express Travel Related Services Company, Inc., MasterCard International Incorporated, Visa USA, Inc. et al. (filed in October 2005 in the U.S. District Court for the Eastern District of New York). The plaintiffs in these actions sought injunctive relief. The 518 Restaurant Corp. action was voluntarily withdrawn without TRS ever having been served with the complaint. The complaint in the Lepkowski action was also never served. The Lepkowski and Performance Labs cases were consolidated in the U.S. District Court for the Eastern District of New York for pre-trial purposes in a larger multi-district litigation involving other named defendants not affiliated with the Company, and all proceedings in the consolidated action were stayed pending the filing of a consolidated amended complaint. Such consolidated amended complaint was filed on April 24, 2006, but the Company was not named in that action. Other defendants, not affiliated with the Company, were named. However, on April 18, 2006, Performance Labs, Inc., Joseph Lepkowski, DDS d/b/a Oak Park Dental Studio, and Jasa Inc. filed an action in the SDNY against American Express Company and American Express Travel Related Services Company, Inc. This complaint challenges the Company's "Anti-Steering" rules as unlawful under the antitrust laws. As alleged by plaintiffs, these rules prevent merchants from offering consumers incentives to use alternative forms of payments when consumers wish to use an American Express-branded card. Originally plaintiffs sought only injunctive relief but have since amended their complaint to also seek unspecified damages. These plaintiffs have agreed that a stay would be imposed with regard to their respective actions pending the appeal of the Court’s arbitration ruling discussed above.

The Company has been named in several purported class actions in various state courts alleging that the Company violated the respective state's laws by wrongfully collecting amounts assessed on converting transactions made in foreign currencies to U.S. dollars and/or failing to

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properly disclose the existence of such amounts in its Cardmember agreements and billing statements. The plaintiffs in the actions seek, among other remedies, injunctive relief, money damages and/or attorneys' fees on their own behalf and on behalf of the putative class of persons similarly situated. In December 2005, the U.S. District Court for the Southern District of Florida granted final approval of a nationwide class action settlement to resolve all lawsuits and allegations with respect to the Company's collection and disclosure of fees assessed on transactions made in foreign currencies in the case captioned Lipuma v. American Express Bank, American Express Travel Related Services Company, Inc. and American Express Centurion Bank (filed in August 2003). The settlement approved by the Court calls for the Company to (a) deposit $75 million into a fund that will be used to reimburse class members with valid claims, make certain contributions to charitable organizations to be identified later and pay attorneys' fees and (b) make certain changes to the disclosures in its Cardmember agreements and billing statements regarding its foreign currency conversion practices (which it has already done). The Company had previously established reserves to cover the payment that will be made to reimburse class members and pay attorneys' fees. The Court’s approval order enjoins all other proceedings that make related allegations pending a final approval hearing including, but not limited to the following cases: (i) Environmental Law Foundation, et al. v. American Express Company, et al., Superior Court of Alameda County, California (filed March 2003); (ii) Rubin v. American Express Company and American Express Travel Related Services Company, Inc., Circuit Court of Madison County, Illinois (filed April 2003); (iii) Angie Arambula, et al. v. American Express Company, et al., District Court of Cameron County, Texas, 103rd Judicial District (filed May 2003); (iv) Fuentes v. American Express Travel Related Services Company, Inc. and American Express Company, District Court of Hidalgo County, Texas (filed May 2003); (v) Wick v. American Express Company, et al., Circuit Court of Cook County, Illinois (filed May 2003); (vi) Bernd Bildstein v. American Express Company, et al., Supreme Court of Queens County, New York (filed June 2003); (vii) Janowitz v. American Express Company, et al., Circuit Court of Cook County, Illinois (filed September 2003); (viii) Paul v. American Express Company, et al., Superior Court of Orange County, California (filed January 2004); and (ix) Ball v. American Express, et al., Superior Court of San Joaquin, California (filed August 2004). The Court’s approval of the settlement has been appealed by several attorneys purporting to represent the interests of objectors to the settlement to the U.S. Court of Appeals for the Eleventh Circuit.

In July 2004, a purported class action captioned Ross, et al. v. American Express Company, American Express Travel Related Services and American Express Centurion Bank was filed in the United States District Court for the Southern District of New York. The complaint alleges that AMEX conspired with Visa, MasterCard and Diners Club in the setting of foreign conversion rates and in the inclusion of arbitration clauses in certain of their cardmember agreements. The suit seeks injunctive relief and unspecified damages. The class is defined as "all Visa, MasterCard and Diners Club general purpose cardholders who used cards issued by any of the MDL Defendant Banks...." American Express cardholders are not part of the class. In September 2005, the Court denied the Company's motion to dismiss the action and preliminarily certified an injunction class of Visa and MasterCard cardholders to determine the validity of Visa's and MasterCard's cardmember arbitration clauses. American Express filed a motion for reconsideration with the Court, which motion was denied in September 2006. The Company has filed an appeal from the District Court’s order denying its motion to compel arbitration. On

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February 14, 2007, the United States Court of Appeals for the Second Circuit denied plaintiffs motion to dismiss that appeal. The Company had also asked the appellate court to entertain an interlocutory appeal of the District court’s certification of an injunction class. On December 19, 2006, that appellate court denied that request.

In January 2006, in a matter captioned Hoffman, et al. v. American Express Travel Related Services Company, Inc., No. 2001-02281, Superior Court of the State of California, County of Alameda, the Court certified a class action against TRS. Two classes were certified: (1) all persons who held American Express charge cards with billing addresses in California who purchased American Express’ fee-based travel-related insurance plans from September 6, 1995, through a date to be determined; and (2) all persons who held American Express charge cards with billing addresses in states other than California and who purchased American Express fee- based travel-related insurance plans from September 6, 1995, through a date to be determined. Plaintiffs allege that American Express violated California and New York law by allegedly billing customers for flight and baggage insurance that they did not receive. American Express denies the allegations and filed an interlocutory appeal (known as a petition for a writ of mandate) of the class certification order. In June 2006, the appellate court denied jurisdiction over that interlocutory appeal. American Express also appealed the denial of its motion to compel individual arbitration of all non-California class members. The appellate court has jurisdiction over that appeal and the appeal is pending. In the U.S. District Court for the Eastern District of New York a matter making related allegations to those raised in Hoffman is pending. That matter, captioned Environment Law Enforcement Systems v. American Express et al., had effectively been stayed pending the proceedings in the Hoffman action. In October 2006, the Court in the Environment Law action entered an order scheduling a pre-motion conference on American Express' anticipated motion to compel arbitration for January 31, 2007. That date has since been extended to March 5, 2007.

In June 2006, a putative class action captioned Homa v. American Express Company et al. was filed in the U.S. District Court for the District of New Jersey. The case alleges, generally, misleading and fraudulent advertising of the “tiered” “up to 5%” cash rebates with the Blue Cash card. The complaint initially sought certification of a nationwide class consisting of “all persons who applied for and received an American Express Blue Cash card during the period from September 30, 2003 to the present and who did not get the rebate or rebates provided for in the offer.” On December 1, 2006, however, plaintiff filed a First Amended Complaint dropping the nationwide class claims and asserting claims only on behalf of New Jersey residents who “while so residing in New Jersey, applied for and received an American Express Blue Cash card during the period from September 30, 2003 to the present.” The plaintiff seeks unspecified damages and other unspecified relief that the Court deems appropriate.

International Matters

As described elsewhere in this report, in recent years, U.S. and foreign regulatory authorities, together with international organizations, have raised increasing concerns over the ability of criminal organizations and corrupt persons to use global financial intermediaries to facilitate money laundering. In the United States, the Secretary of the Treasury has issued regulations pursuant to the U.S. Patriot Act that specifically impact certain money laundering

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prevention activities of entities involved, as AEBL is, in correspondent and private banking activities. Compliance efforts to combat money laundering remain a high priority for AEBL and it has increased these efforts to address evolving regulatory and supervisory standards and requirements in jurisdictions in which AEBL does business. The regulatory authorities are exercising heightened scrutiny of the anti-money laundering programs of financial institutions and have taken action against financial institutions for deficiencies in such programs. In early 2004, AEBI, a subsidiary of AEBL headquartered in Miami, received subpoenas from the Department of Justice (“DOJ”) relating to certain customer accounts and anti-money laundering (“AML”) compliance programs. In September 2006, the DOJ informed AEBI of concerns relating to AML compliance programs that could result in an action. AEBI has been cooperating with the DOJ.

In May 2006, in a matter captioned Marcotte v. Bank of Montreal et al., filed in the Superior Court of Quebec, District of Montreal (originally filed in April 2003) the Court authorized a class action against Amex Bank of Canada, Bank of Montreal, Toronto-Dominion Bank, Royal Bank of Canada, Canadian Imperial Bank of Commerce, Scotiabank, National Bank of Canada, Laurentian Bank of Canada and Citibank Canada. The action alleges that conversion commissions made on foreign currency transactions are credit charges under the Quebec Consumer Protection Act (the “QCPA”) and cannot be charged prior to the 21-day under the QCPA. The class includes all persons holding a credit card issued by one of the defendants to whom fees were charged since April 17, 2000, for transactions made in foreign currency before expiration of the period of 21 days following the statement of account. The class claims reimbursement of all foreign currency conversions, CDN $400 per class member for trouble, inconvenience and punitive damages, interest and fees and costs.

In March 2006, a motion to authorize a class action captioned Jasmin v. Amex Bank of Canada, was filed in the Superior Court of Quebec, District of Montreal. The motion purports to claim, on behalf of a Canada-wide class of persons who were holders of an American Express Credit Card who paid their credit card account at the counter or at an automatic banking machine of an authorized financial institution, and who obtained a grace period that was less than that appearing on their statement of account and/or who were charged interest under a three- to five- day processing delay contrary to their contracts, the law respecting banks and the Civil Code of Quebec. A claim is also being made of an alleged violation of the Charter of Human Rights and Freedoms for depriving the class members of their use of property. The class claims reimbursement per class member of finance charges in the amount of CDN $75, CDN $100 in punitive damages and CDN $25 for having to pay their account early and being deprived of the use of their money, interest, fees and costs.

In March 2006, in a matter captioned Ptack v. Amex Bank of Canada, filed in the Superior Court of Quebec, District of Montreal (originally filed in March 2004), the Court authorized a class action against Amex Bank of Canada. The class includes all persons who were holders of an American Express Credit Card who paid their credit card account via Internet, telephone and/or automatic banking machine, on or before the due date and incurred a finance charge as a result of the alleged payment processing policy of Amex Bank. The class claims reimbursement per class member of finance charges, CDN $100 in punitive damages and CDN

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$100 for waste of time, interest and fees and costs. Amex Bank believes it has meritorious defenses and will defend against this action.

In November 2006, in a matter captioned Option Consommateurs and Benoit Fortin v. Amex Bank of Canada et al. filed in the Superior Court of Quebec, District of Montreal (originally filed in July 2003), the Court authorized a class action against Amex Bank of Canada, Citibank Canada, MBNA Canada, Diners Club International, Capital One and Royal Bank of Canada. The plaintiff alleges that the defendants have violated the Quebec Consumer Protection Act (“QCPA”) by imposing finance charges on credit card transactions prior to 21 days following the receipt of the statement containing the charge. It is alleged that the QCPA provisions which require a 21-day grace period prior to imposing finance charges applies to credit cards issued by Amex Bank of Canada in Quebec and that finance charges imposed prior to this grace period violate the Act. The class seeks reimbursement of all finance charges imposed in violation of the Act, CDN$200 in punitive damages per class member, interest and fees and costs.

In November 2006, in a matter captioned Sylvan Adams v. Amex Bank of Canada filed in the Superior Court of Quebec, District of Montreal (originally filed in November 2004), the Court authorized a class action against Amex Bank of Canada. The plaintiff alleges that prior to December 2003, Amex Bank of Canada charged a foreign currency conversion commission on transactions to purchase goods and services in currencies other than Canadian dollars and failed to disclose the commissions in monthly billing statements or solicitations directed to prospective cardmembers. The class, consisting of all Cardmembers in Quebec that purchased goods or services in a foreign currency prior to December 2003, claims reimbursement of all foreign currency conversion commissions, CDN$1,000 in punitive damages per class member, interest and fees and costs.

In May 2005, Amex Bank of Canada was added as a defendant to a motion to authorize a class action captioned Option Consommateurs and Joel-Christian St-Pierre v. Bank of Montreal et al. filed in the Superior Court of Quebec, District of Quebec. The motion, which also names as defendants Royal Bank of Canada, Toronto-Dominion Bank, HSBC Bank of Canada, among others, alleges that the defendants violated QCPA by imposing finance charges on credit card transactions prior to 21 days following the receipt of the statement containing the charge. It is alleged that the QCPA provisions, which require a 21-day grace period prior to imposing finance charges, applies to credit cards issued by Amex Bank of Canada in Quebec and that finance charges imposed prior to this grace period violate the QCPA. The proposed class seeks reimbursement of all finance charges imposed in violation of the QCPA, CDN$100 in punitive damages per class member, interest and fees and costs.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

We did not submit any matters to a vote of our security holders during the last quarter of our fiscal year ended December 31, 2006.

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PART II

ITEM 5. MARKET FOR COMPANY’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

(a) Our common stock trades principally on The New York Stock Exchange under the trading symbol AXP. As of December 31, 2006, we had 51,644 common shareholders of record. You can find price, quarterly price and dividend information concerning our common stock in Note 20 to the Consolidated Financial Statements, which can be found on page 109 of our 2006 Annual Report to Shareholders, which Note is incorporated herein by reference. You can find information on securities authorized for issuance under our equity compensation plans under the captions “Executive Compensation – Share Plans”, and “Executive Compensation – Equity Compensation Plan Information” to be contained in the Company’s definitive 2007 proxy statement for our Annual Meeting of Shareholders, which is scheduled to be held on April 23, 2007. The information to be found under such captions is incorporated herein by reference. In addition, you can find information regarding our 2007 Incentive Compensation Plan, which will be voted on by our Shareholders at the Annual Meeting, under the caption “Item 3 – Proposal to Adopt the American Express Company 2007 Incentive Compensation Plan” to be contained in our definitive 2007 Proxy Statement. Our proxy statement for the Annual Meeting is expected to be filed with the SEC in March 2007 (and, in any event, not later than 120 days of the close of our most recently completed fiscal year).

On December 31, 2006, we acquired Harbor Payments, Inc. ("Harbor"), a privately held company, pursuant to a merger agreement under which fifteen former Harbor shareholders received an aggregate of 2,424,660 unregistered American Express common shares in a private placement transaction, in consideration of all of the outstanding shares of Harbor, and Harbor became a wholly-owned subsidiary of ours. The merger documents contained certain representations and warranties of the former Harbor shareholders that we relied upon in making this private placement pursuant to the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended.

(b) Not applicable.

(c) The table below sets forth the information with respect to purchases of our common stock made by or on behalf of the Company during the quarter ended December 31, 2006.

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Total Number of Shares Maximum Purchased as Number of Shares Part of Publicly that May Yet Be Total Number Announced Purchased Under of Shares Average Price Plans or the Plans or Period Purchased Paid Per Share Programs (3) Programs October 1-31, 2006 Repurchase program (1) 2,300,000 $57.14 2,300,000 181,118,123 Employee transactions (2) 8,194 $54.19 N/A N/A November 1-30, 2006 Repurchase program (1) 5,313,700 $58.85 5,313,700 175,804,423 Employee transactions (2) 371,854 $59.20 N/A N/A December 1-31, 2006 Repurchase program (1) 10,995,100 $59.85 10,995,100 164,809,323 Employee transactions (2) 44,550 $59.83 N/A N/A

Total Repurchase program (1) 18,608,800 $59.23 Employee transactions (2) 424,598 $59.17

(1) Our Board of Directors authorized the repurchase of an additional 200 million shares of common stock in May 2006. At present, there are approximately 164.8 million shares remaining under such authorization. Such authorization does not have an expiration date, and at present, there is no intention to modify or otherwise rescind such authorization. Since September 1994, we have acquired 605.2 million shares of our common stock under various Board authorizations to repurchase up to an aggregate of 770 million shares, including purchases made under agreements with third parties.

(2) Includes: (a) shares delivered by or deducted from holders of employee stock options who exercised options (granted under our incentive compensation plans) in satisfaction of the exercise price and/or tax withholding obligation of such holders and (b) restricted shares withheld (under the terms of grants under our incentive compensation plans) to offset tax withholding obligations that occur upon vesting and release of restricted shares. Our incentive compensation plans provide that the value of the shares delivered or attested to, or withheld, shall be the average of the high and low price of the Company’s common stock on the date the relevant transaction occurs.

(3) Share purchases under publicly announced programs are made pursuant to open market purchases or privately negotiated transactions (including with employee benefit plans) as market conditions warrant and at prices we deem appropriate.

ITEM 6. SELECTED FINANCIAL DATA

The “Consolidated Five-Year Summary of Selected Financial Data” appearing on page 111 of the Company’s 2006 Annual Report to Shareholders is incorporated herein by reference.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The information set forth under the heading “Financial Review” appearing on pages 30- 63 of the Company’s 2006 Annual Report to Shareholders is incorporated herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information set forth under the heading “Risk Management” appearing on pages 49- 53 and in Note 10 to the Consolidated Financial Statements on pages 93-95 of the Company’s 2006 Annual Report to Shareholders is incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The “Report of Independent Registered Public Accounting Firm” (PricewaterhouseCoopers LLP), the “Report of Independent Registered Public Accounting Firm” (Ernst & Young LLP), the “Consolidated Financial Statements” and the “Notes to Consolidated Financial Statements” appearing on pages 66-110 of the Company’s 2006 Annual Report to Shareholders are incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

The Company’s management, with the participation of the Company’s Chief Executive Officer and acting Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and acting Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective.

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the Company’s fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

“Management’s Report on Internal Control over Financial Reporting,” which sets forth management’s evaluation of internal control over financial reporting, and the “Reports of Independent Registered Public Accounting Firms,” appearing on pages 65-68 of the Company’s 2006 Annual Report to Shareholders, are incorporated herein by reference.

63

ITEM 9B. OTHER INFORMATION

Not applicable.

PART III

ITEMS 10, 11, 12 and 13. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE; EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS; CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

We expect to file with the SEC, in March 2007 (and, in any event, not later than 120 days after the close of our last fiscal year), a definitive proxy statement, pursuant to Regulation 14A of the SEC in connection with our Annual Meeting of Shareholders to be held April 23, 2007, which involves the election of directors. The following information to be included in such proxy statement is incorporated herein by reference:

• information included under the caption “Corporate Governance – Summary of the Corporate Governance Principles – Independence of Directors;” • information included in the table under the caption “Corporate Governance – Membership on Board Committees;” • information under the captions “Corporate Governance – Compensation and Benefits Committee – Compensation Committee Interlocks and Insider Participation” and “Report of Compensation and Benefits Committee;” • information included under the caption “Corporate Governance – Audit Committee;” • information included under the caption “Compensation of Directors;” • information included under the caption “Ownership of Our Common Shares;” • information included under the caption “Items to be Voted on by Shareholders – Item 1 – Election of Directors;” • information included under the caption “Executive Compensation;” • information under the caption “Certain Relationships and Transactions;” and • information under the caption “Section 16(a) Beneficial Ownership Reporting Compliance.”

In addition, the information regarding executive officers called for by Item 401(b) of Regulation S-K may be found under the caption “Executive Officers of the Company” in this report.

We have adopted a set of Corporate Governance Principles, which together with the charters of the five standing committees of the Board of Directors (Audit; Compensation and Benefits; Executive; Nominating and Governance; and Public Responsibility), our Code of

64

Conduct (which constitutes the Company’s code of ethics), and the Code of Business Conduct for the Members of the Board of Directors provide the framework for the governance of the Company. A complete copy of our Corporate Governance Principles, the charters of each of the Board committees, the Code of Conduct (which applies not only to our Chief Executive Officer, Chief Financial Officer and Comptroller, but also to all other employees of the Company) and the Code of Business Conduct for the Members of the Board of Directors may be found by clicking on the “Corporate Governance” link found on our Investor Relations Web site at http://ir.americanexpress.com. You may also access our Investor Relations Web site through the Company’s main Web site at www.americanexpress.com by clicking on the “About American Express” link, which is located at the bottom of the Company’s homepage. (Information from such sites is not incorporated by reference into this report.) You may also obtain free copies of these materials by writing to our Secretary at the Company’s headquarters.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information set forth under the heading “Item 2 – Selection of Independent Registered Public Accountants – Audit Fees;” “ – Audit-Related Fees;” “ – Tax Fees;” “ – All Other Fees;” and “ – Policy on Pre-Approval of Services Provided by Independent Registered Public Accountants,” which will appear in the Company’s definitive proxy statement in connection with our Annual Meeting of Shareholders to be held April 23, 2007, is incorporated herein by reference.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

1. Financial Statements:

The financial statements filed as a part of this report are listed on page F-1 hereof under “Index to Financial Statements Covered by Reports of Independent Registered Public Accounting Firms,” which is incorporated herein by reference.

2. Financial Statement Schedules:

The financial statement schedules required to be filed in this report are listed on page F-1 hereof under “Index to Financial Statements Covered by Reports of Independent Registered Public Accounting Firms,” which is incorporated herein by reference.

3. Exhibits:

The list of exhibits required to be filed as exhibits to this report are listed on pages E- 1 through E-6 hereof under “Exhibit Index,” which is incorporated herein by reference.

65

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERICAN EXPRESS COMPANY

February 28, 2007 /s/ Daniel T. Henry Daniel T. Henry Executive Vice President and acting Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the date indicated.

/s/ Kenneth I. Chenault /s/ Vernon E. Jordan, Jr. Kenneth I. Chenault Vernon E. Jordan, Jr. Chairman, Chief Executive Officer and Director Director

/s/ Daniel T. Henry /s/ Daniel T. Henry Jan Leschly Executive Vice President and Director acting Chief Financial Officer

/s/ Joan C. Amble /s/ Richard C. Levin Joan C. Amble Richard C. Levin Executive Vice President and Comptroller Director

/s/ Daniel F. Akerson /s/ Richard A. McGinn Daniel F. Akerson Richard A. McGinn Director Director

/s/ /s/ Edward D. Miller Charlene Barshefsky Edward D. Miller Director Director

/s/ Ursula M. Burns /s/ Frank P. Popoff Ursula M. Burns Frank P. Popoff Director Director

/s/ Peter Chernin /s/ Robert D. Walter Peter Chernin Robert D. Walter Director Director

/s/ Ronald A. Williams Ronald A. Williams Director

February 28, 2007

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AMERICAN EXPRESS COMPANY

INDEX TO FINANCIAL STATEMENTS COVERED BY REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS

(Items 15(a)(1) and 15(a)(2) of Form 10-K)

Annual Report to Shareholders Form 10-K (Page) American Express Company and Subsidiaries: Data incorporated by reference from 2006 Annual Report to Shareholders: Management’s report on internal control over financial reporting ...... 65 Report of independent registered public accounting firm (PricewaterhouseCoopers LLP)...... 66-67 Report of independent registered public accounting firm (Ernst & Young LLP)...... 68 Consolidated statements of income for each of the three years in the period ended December 31, 2006...... 70 Consolidated balance sheets at December 31, 2006 and 2005 ...... 71 Consolidated statements of cash flows for each of the three years in the period ended December 31, 2006...... 72 Consolidated statements of shareholders’ equity for each of the three years in the period ended December 31, 2006...... 73 Notes to consolidated financial statements...... 74-110 Consent of independent registered public accounting firm...... F-2 Consent of independent registered public accounting firm...... F-3 Schedules: Report of independent registered public accounting firm on financial statement schedules ...... F-4 I — Condensed financial information of the Company...... F-5 – F-9 II — Valuation and qualifying accounts for each of the three years in the period ended December 31, 2006...... F-10

All other schedules for American Express Company and subsidiaries have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the respective financial statements or notes thereto. * * *

The Consolidated Financial Statements of American Express Company (including the reports of independent registered public accounting firms) listed in the above index, which are included in the Annual Report to Shareholders for the year ended December 31, 2006, are hereby incorporated by reference. With the exception of the pages listed in the above index, unless otherwise incorporated by reference elsewhere in this Annual Report on Form 10-K, the 2006 Annual Report to Shareholders is not to be deemed filed as part of this report.

F-1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements (Form S-8 No. 2-46918, No. 2-59230, No. 2-64285, No. 2-73954, No. 2-89680, No. 33-01771, No. 33-02980, No. 33-28721, No. 33-33552, No. 33-36442, No. 33-48629, No. 33-62124, No. 33-65008, No. 33-53801, No. 333-12683, No. 333-41779, No. 333-52699, No. 333-73111, No. 333-38238, and No. 333-98479; Form S-3 No. 2-89469, No. 33-43268, No. 33-50997, No. 333- 32525, No. 333-45445, No. 333-47085, No. 333-55761, No. 333-51828, No. 333-113768, No. 333-117835 and No. 333-138032) of American Express Company of our report dated February 26, 2007, relating to the consolidated financial statements, management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in the Annual Report to Shareholders, which is incorporated by reference in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated February 26, 2007, relating to the financial statement schedules, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

New York, New York February 26, 2007

F-2

Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in this Annual Report on Form 10-K of American Express Company of our report dated February 18, 2005, except for notes 2 and 19, as to which the date is February 27, 2006, with respect to the consolidated financial statements of American Express Company, included in the 2006 Annual Report to Shareholders of American Express Company (the “Company”).

Our audit also included the financial statement schedules of American Express Company listed in Item 15(a). These schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audit. In our opinion the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.

We also consent to the incorporation by reference in the Registration Statements (Form S-8 No. 2-46918, No. 2-59230, No. 2-64285, No. 2-73954, No. 2-89680, No. 33-01771, No. 33- 02980, No. 33-28721, No. 33-33552, No. 33-36442, No. 33-48629, No. 33-62124, No. 33- 65008, No. 33-53801, No. 333-12683, No. 333-41779, No. 333-52699, No. 333-73111, No. 333- 38238, and No. 333-98479; Form S-3 No. 2-89469, No. 33-43268, No. 33-50997, No. 333- 32525, No. 333-45445, No. 333-47085, No. 333-55761, No. 333-51828, No. 333-113768, No. 333-117835 and No. 333-138032) and in the related Prospectuses of our report dated February 18, 2005, except for notes 2 and 19, as to which the date is February 27, 2006, with respect to the consolidated financial statements of American Express Company incorporated herein by reference, and our report in the preceding paragraph with respect to the financial statement schedules of American Express Company included in this Annual Report on Form 10-K of American Express Company.

/s/ Ernst & Young LLP

New York, New York February 26, 2007

F-3

Report of Independent Registered Public Accounting Firm on Financial Statement Schedules

To the Board of Directors and Shareholders of American Express Company:

Our audits of the consolidated financial statements, of management’s assessment of the effectiveness of internal control over financial reporting and of the effectiveness of internal control over financial reporting referred to in our report dated February 26, 2007 appearing in the 2006 Annual Report to Shareholders of American Express Company (which report, consolidated financial statements and assessment are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedules as of and for the years ended December 31, 2006 and December 31, 2005, listed in Item 15(a)(2) of this Form 10-K. In our opinion, these financial statement schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP New York, New York February 26, 2007

F-4

AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES

SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF THE COMPANY

CONDENSED STATEMENTS OF INCOME

(Parent Company Only) (millions)

Years Ended December 31, 2006 2005 2004 Revenues $ 196 $ 183 $ 220

Expenses: Interest 243 336 427 Human resources 136 145 105 Other 173 198 186 Total 552 679 718

Pretax loss (356) (496) (498) Income tax benefit (187) (195) (205) Net loss before equity in net income of subsidiaries and affiliates (169) (301) (293) Equity in net income of subsidiaries and affiliates 3,898 3,522 2,979 Income from continuing operations 3,729 3,221 2,686 (Loss) Income from discontinued operations, net of tax (22) 513 830 Cumulative effect of accounting change related to discontinued operations, net of tax — — (71) Net income $3,707 $3,734 $3,445

See Notes to Condensed Financial Information of the Parent Company on page F-8.

F-5

AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES

SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF THE COMPANY

CONDENSED BALANCE SHEETS

(Parent Company Only) (millions, except share amounts)

December 31, 2006 2005 ASSETS Cash and cash equivalents $ 3 $ 3 Investments 50 30 Equity in net assets of subsidiaries and affiliates of continuing operations 11,017 10,955 Accounts receivable and accrued interest, less reserves 20 45 Land, buildings and equipment — at cost, less accumulated depreciation: 2006, $22; 2005, $32 33 29 Due from subsidiaries 5,067 4,853 Other assets 388 204 Total assets $ 16,578 $ 16,119

LIABILITIES AND SHAREHOLDERS’ EQUITY Accounts payable and other liabilities $ 73 $ 309 Long-term debt 5,994 5,242 Due to subsidiaries — 19 Total liabilities 6,067 5,570 Shareholders’ equity: Common shares, $.20 par value, authorized 3.6 billion shares; issued and outstanding 1,199 million shares in 2006 and 1,241 million shares in 2005 240 248 Additional paid-in capital 9,638 8,652 Retained earnings 1,153 1,788 Accumulated other comprehensive (loss) income, net of tax: Net unrealized securities gains 92 137 Net unrealized derivatives gains 27 143 Foreign currency translation adjustments (222) (400) Net unrealized pension and other postretirement benefit costs (417) — Minimum pension liability — (19) Total accumulated other comprehensive loss (520) (139) Total shareholders’ equity 10,511 10,549 Total liabilities and shareholders’ equity $ 16,578 $ 16,119

See Notes to Condensed Financial Information of the Parent Company on page F-8.

F-6

AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES

SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF THE COMPANY

CONDENSED STATEMENTS OF CASH FLOWS

(Parent Company Only) (millions)

Years Ended December 31, 2006 2005 2004 Cash Flows from Operating Activities: Net income $ 3,707 $ 3,734 $ 3,445

Adjustments to reconcile net income to cash provided by operating activities: Equity in net (income) loss of subsidiaries and affiliates: – continuing operations (3,898) (3,522) (2,979) – discontinued operations 22 (513) (830) Cumulative effect of accounting change related to discontinued operations, net of tax — — 71 Dividends received from subsidiaries and affiliates 3,479 2,474 2,110 Dividends received from discontinued operations — — 1,325 Other operating activities, primarily with subsidiaries (279) (316) (76) Net cash provided by operating activities 3,031 1,857 3,066

Cash Flows from Investing Activities: Purchase of investments (20) (30) — Purchase of land, buildings and equipment (10) (8) (10) Acquisition (200) — — Net cash used in investing activities (230) (38) (10)

Cash Flows from Financing Activities: Issuance of debt 1,750 — 1 Principal payment of debt (1,000) (498) — Issuance of American Express common shares and other 1,203 1,129 1,055 Repurchase of American Express common shares (4,093) (1,853) (3,578) Dividends paid (661) (597) (535) Net cash used in financing activities (2,801) (1,819) (3,057)

Net decrease in cash and cash equivalents — — (1)

Cash and cash equivalents at beginning of year 3 3 4

Cash and cash equivalents at end of year $ 3 $ 3 $ 3

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid for interest (net of amounts capitalized) in 2006, 2005 and 2004 was $190 million, $246 million and $174 million, respectively. Net cash received for income taxes in 2006, 2005 and 2004 was $216 million, $160 million and $384 million, respectively.

See Notes to Condensed Financial Information of the Parent Company on page F-8.

F-7

AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES

SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF THE COMPANY

NOTES TO CONDENSED FINANCIAL INFORMATION OF THE COMPANY

(Parent Company Only)

1. Principles of Consolidation

The accompanying condensed financial statements include the accounts of American Express Company (the “Parent Company”) and, on an equity basis, its subsidiaries and affiliates. Parent Company revenues and expenses, other than human resources expenses and interest expense on long-term debt, are primarily related to intercompany transactions with subsidiaries and affiliates. These financial statements should be read in conjunction with the consolidated financial statements and the accompanying notes thereto of American Express Company and its subsidiaries (the “Company”). Certain reclassifications of prior period amounts have been made to conform to the current presentation.

On September 30, 2005, the Company completed the spin-off of Ameriprise Financial, Inc. (Ameriprise), formerly known as American Express Financial Corporation, the Company’s financial planning and financial services business. In addition, during the third quarter of 2005, the Company completed certain dispositions including the sale of its tax, accounting and consulting business, American Express Tax and Business Services, Inc. (“TBS”). The operating results and cash flows related to Ameriprise and certain dispositions (including TBS) have been reflected as discontinued operations in the condensed financial information.

F-8

2. Long-term debt consists of (millions): December 31, 2006 2005 1.85% Convertible Debentures due December 1, 2033(a) $ — $ 2,000 3.75% Senior Notes due November 20, 2007 749 748 4.75% Senior Notes due June 17, 2009 500 499 4.875% Senior Notes due July 15, 2013 995 995 5.25% Senior Notes due September 12, 2011 400 — 5.48% Senior Notes due December 1, 2033(a) 2,000 — 5.50 % Senior Notes due September 12, 2006 — 1,000 5.50 % Senior Notes due September 12, 2016 600 — Subordinated Debentures due 2036 750 — $ 5,994 $ 5,242

(a) At December 1, 2006, the Parent Company remarketed the $2 billion Convertible Debentures outstanding at December 31, 2005, into unsecured 5.48 percent floating rate senior notes due 2033.

Aggregate annual maturities of long-term debt for the five years ending December 31, 2011 are as follows (millions): 2007, $749; 2008, $0; 2009, $500; 2010, $0; 2011, $400 and thereafter, $4,345.

F-9

AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES

SCHEDULE II —VALUATION AND QUALIFYING ACCOUNTS

THREE YEARS ENDED DECEMBER 31, 2006 (millions)

Reserve for credit losses, loans, Reserve for doubtful and discounts accounts receivable 2006 2005 2004 2006 2005 2004 Balance at beginning of period $1,097 $1,084 $1,121 $1,008 $863 $918 Additions: Charges to income 1,699 1,381 1,188 1,296 1,563(a) 1,213(a) Recoveries of amounts previously written off 212 148 94 — — — Deductions: Charges for which reserves were provided (1,739) (1,516) (1,319) (1,281) (1,418) (1,268) Balance at end of period $1,269 $1,097 $1,084 $1,023 $1,008 $ 863

(a) Before recoveries on accounts previously written off, which are credited to income (millions): 2006 – $210; 2005 – $202 and 2004 – $196.

F-10

EXHIBIT INDEX

The following exhibits are filed as part of this Annual Report. The exhibit numbers preceded by an asterisk (*) indicate exhibits electronically filed herewith. All other exhibit numbers indicate exhibits previously filed and are hereby incorporated herein by reference. Exhibits numbered 10.1 through 10.26, 10.28 through 10.39 and 10.42 through 10.44 are management contracts or compensatory plans or arrangements.

3.1 Company’s Restated Certificate of Incorporation (incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement on Form S-3, dated July 31, 1997 (Commission File No. 333-32525)).

3.2 Company’s Certificate of Amendment of the Certificate of Incorporation (incorporated by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended March 31, 2000).

3.3 Company’s By-Laws, as amended through September 27, 2006 (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K (Commission File No. 1-7657), dated September 27, 2006 (filed September 29, 2006)).

4. The instruments defining the rights of holders of long-term debt securities of the Company and its subsidiaries are omitted pursuant to Section (b)(4)(iii)(A) of Item 601 of Regulation S-K. The Company hereby agrees to furnish copies of these instruments to the SEC upon request.

10.1 American Express Company 1989 Long-Term Incentive Plan, as amended and restated (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended March 31, 1996).

10.2 American Express Company 1989 Long-Term Incentive Compensation Plan Master Agreement, dated February 27, 1995 (incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K (Commission File No. 1-7657), dated November 22, 2004 (filed January 28, 2005)).

10.3 Amendment dated February 28, 2000 of American Express Company 1989 Long-Term Incentive Compensation Plan Master Agreement dated February 27, 1995 (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended March 31, 2000).

10.4 American Express Company 1998 Incentive Compensation Plan, as amended through July 25, 2005 (incorporated by reference to Exhibit 10.4 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the year ended December 31, 2005).

10.5 American Express Company 1998 Incentive Compensation Plan Master Agreement, dated April 27, 1998 (for awards made prior to January 22, 2007) (incorporated by

E-1

reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended September 30, 2004).

10.6 Amendment of American Express Company 1998 Incentive Compensation Plan Master Agreement, dated April 27, 1998 (for awards made prior to January 22, 2007) (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended March 31, 2000).

*10.7 American Express Company 1998 Incentive Compensation Plan Master Agreement, dated January 22, 2007 (for awards made on or after such date).

*10.8 Form of award agreement for executive officers in connection with Performance Grant awards (a/k/a Incentive Award) under the American Express Company 1998 Incentive Compensation Plan, as amended.

10.9 Form of award agreement for executive officers in connection with Portfolio Grants under the American Express Company 1998 Incentive Compensation Plan, as amended (for awards made prior to January 22, 2007) (incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the year ended December 31, 2005).

10.10 Form of award agreement for executive officers in connection with Portfolio Grants under the American Express Company 1998 Incentive Compensation Plan, as amended (for awards made after January 22, 2007) (incorporated by reference to Exhibit 10.1 to the Company’s current Report on Form 8-K (Commission File No. 1-7657) dated January 22, 2007 (filed January 26, 2007)).

10.11 Description of Compensation Payable to Non-Management Directors (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (Commission File No. 1-7657), dated November 21, 2005 (filed January 13, 2006)).

10.12 American Express Company Deferred Compensation Plan for Directors, as amended through July 28, 2003 (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K (Commission File No. 1-7657), dated November 22, 2004 (filed January 28, 2005)).

*10.13 Description of amendments to 1994 – 2006 Pay-for-Performance Deferral Programs.

10.14 Description of American Express Company Pay-for-Performance Deferral Program (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K (Commission File No. l-7657), dated November 22, 2004 (filed January 28, 2005)).

10.15 American Express Company 2006 Pay-for-Performance Deferral Program Guide (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (Commission File No. 1-7657), dated November 21, 2005 (filed November 23, 2005)).

E-2

10.16 American Express Company 2005 Pay-for-Performance Deferral Program Guide (incorporated by reference to Exhibit 10.10 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the fiscal year ended December 31, 2004).

10.17 American Express Company 2007 Pay-for-Performance Deferral Program Document (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (Commission File No. 1-7657), dated November 20, 2006 (filed November 22, 2006)).

10.18 American Express Company Retirement Plan for Non-Employee Directors, as amended (incorporated by reference to Exhibit 10.12 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the fiscal year ended December 31, 1988).

10.19 Certificate of Amendment of the American Express Company Retirement Plan for Non- Employee Directors dated March 21, 1996 (incorporated by reference to Exhibit 10.11 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the fiscal year ended December 31, 1995).

10.20 American Express Key Executive Life Insurance Plan, as amended (incorporated by reference to Exhibit 10.12 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the fiscal year ended December 31, 1991).

10.21 Amendment to American Express Company Key Executive Life Insurance Plan (incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended September 30, 1994).

*10.22 Amendment to American Express Company Key Executive Life Insurance Plan, effective as of January 22, 2007.

10.23 American Express Key Employee Charitable Award Program for Education (incorporated by reference to Exhibit 10.13 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the fiscal year ended December 31, 1990).

10.24 American Express Directors’ Charitable Award Program (incorporated by reference to Exhibit 10.14 of the Company’s Annual Report on Form 10-K (Commission File No. 1- 7657) for the fiscal year ended December 31, 1990).

10.25 American Express Company Salary/Bonus Deferral Plan (incorporated by reference to Exhibit 10.20 of the Company’s Annual Report on Form 10-K (Commission File No. 1- 7657) for the fiscal year ended December 31, 1988).

10.26 Amendment to American Express Company Salary/Bonus Deferral Plan (incorporated by reference to Exhibit 10.4 of the Company’s Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended September 30, 1994).

10.27 Tax Allocation Agreement, dated May 27, 1994, between Holdings Inc. and the Company (incorporated by reference to Exhibit 10.2 of Lehman Brothers

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Holdings Inc.’s Transition Report on Form 10-K (Commission File No. 1-9466) for the transition period from January 1, 1994 to November 30, 1994).

10.28 American Express Company 1993 Directors’ Stock Option Plan, as amended (incorporated by reference to Exhibit 10.11 of the Company’s Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended March 31, 2000).

10.29 American Express Senior Executive Severance Plan Effective January 1, 1994 (as amended and restated through May 1, 2000) (incorporated by reference to Exhibit 10.10 of the Company’s Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended March 31, 2000).

10.30 Amendments to the American Express Senior Executive Severance Plan, effective November 26, 2001 (incorporated by reference to Exhibit 10.30 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the year ended December 31, 2001).

*10.31 Amendments to the American Express Senior Executive Severance Plan, effective January 22, 2007.

10.32 Amendment of Long-Term Incentive Awards under the American Express Company 1979 and 1989 Long-Term Incentive Plans (incorporated by reference to Exhibit 10.6 of the Company’s Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended September 30, 1994).

10.33 Amendments of (i) Long-Term Incentive Awards under the American Express Company 1979 and 1989 Long-Term Incentive Plans, (ii) the American Express Senior Executive Severance Plan, (iii) the American Express Supplemental Retirement Plan, (iv) the American Express Salary/Bonus Deferral Plan, (v) the American Express Key Executive Life Insurance Plan and (vi) the IDS Current Service Deferred Compensation Plan (incorporated by reference to Exhibit 10.37 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the fiscal year ended December 31, 1997).

10.34 American Express Supplemental Retirement Plan Amended and Restated Effective March 1, 1995 (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended September 30, 1999).

10.35 American Express Supplemental Retirement Plan (as amended and restated effective July 1, 2007) (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K (Commission File No. 1-7657), dated January 22, 2007 (filed January 26, 2007)).

10.36 American Express Directors’ Stock Plan (incorporated by reference to Exhibit 4.4 of the Company’s Registration Statement on Form S-8, dated December 9, 1997 (Commission File No. 333-41779)).

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10.37 American Express Annual Incentive Award Plan (incorporated by reference to Exhibit 10.6 of the Company’s Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended March 31, 2000).

*10.38 Amendment to American Express Annual Incentive Award Plan, effective January 22, 2007.

10.39 Agreement dated February 27, 1995 between the Company and Berkshire Hathaway Inc. (incorporated by reference to Exhibit 10.43 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the fiscal year ended December 31, 1994).

10.40 Agreement dated July 20, 1995 between the Company and Berkshire Hathaway Inc. and its subsidiaries (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended September 30, 1995).

10.41 Amendment dated September 8, 2000 to the agreement dated February 27, 1995 between the Company and Berkshire Hathaway Inc. (incorporated by reference to Exhibit 99.3 of the Company’s Current Report on Form 8-K (Commission File No. 1-7657) dated January 22, 2001).

10.42 Description of a special grant of a stock option and restricted stock award to Kenneth I. Chenault, the Company’s President and Chief Operating Officer (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended June 30, 1999).

10.43 American Express Company 2003 Share Equivalent Unit Plan for Directors, as adopted and effective April 28, 2003 (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended March 31, 2003).

*10.44 Description of 2007 Base Salaries of Named Executive Officers.

10.45 Separation and Distribution Agreement between American Express Company and Ameriprise Financial, Inc., dated August 24, 2005 (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (Commission File No. 1-7657), dated August 24, 2005 (filed August 30, 2005)).

10.46 Employee Benefits Agreement, dated as of September 30, 2005, by and between American Express Company and Ameriprise Financial, Inc. (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (Commission File No. 1- 7657), dated October 6, 2005).

10.47 Tax Allocation Agreement, dated as of September 30, 2005, by and between American Express Company and Ameriprise Financial, Inc. (incorporated by reference to Exhibit

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10.2 of the Company’s Current Report on Form 8-K (Commission File No. 1-7657), dated October 6, 2005).

*12 Computation in Support of Ratio of Earnings to Fixed Charges.

*13 Portions of the Company’s 2006 Annual Report to Shareholders that are incorporated herein by reference.

*21 Subsidiaries of the Company.

*23.1 Consent of PricewaterhouseCoopers LLP (contained on page F-2 of this Annual Report on Form 10-K).

*23.2 Consent of Ernst & Young LLP (contained on page F-3 of this Annual Report on Form 10-K).

*31.1 Certification of Kenneth I. Chenault, Chief Executive Officer, pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.

*31.2 Certification of Daniel T. Henry, acting Chief Financial Officer, pursuant to Rule 13a- 14(a) promulgated under the Securities Exchange Act of 1934, as amended.

*32.1 Certification of Kenneth I. Chenault, Chief Executive Officer, and Daniel T. Henry, acting Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

E-6 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549

______

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2006 Commission File No. 1-7657

______

American Express Company (Exact name of Company as specified in charter)

EXHIBITS

EXHIBIT INDEX

The following exhibits are filed as part of this Annual Report. The exhibit numbers preceded by an asterisk (*) indicate exhibits electronically filed herewith. All other exhibit numbers indicate exhibits previously filed and are hereby incorporated herein by reference. Exhibits numbered 10.1 through 10.26, 10.28 through 10.39 and 10.42 through 10.44 are management contracts or compensatory plans or arrangements.

3.1 Company’s Restated Certificate of Incorporation (incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement on Form S-3, dated July 31, 1997 (Commission File No. 333-32525)).

3.2 Company’s Certificate of Amendment of the Certificate of Incorporation (incorporated by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended March 31, 2000).

3.3 Company’s By-Laws, as amended through September 27, 2006 (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K (Commission File No. 1-7657), dated September 27, 2006 (filed September 29, 2006)).

4. The instruments defining the rights of holders of long-term debt securities of the Company and its subsidiaries are omitted pursuant to Section (b)(4)(iii)(A) of Item 601 of Regulation S-K. The Company hereby agrees to furnish copies of these instruments to the SEC upon request.

10.1 American Express Company 1989 Long-Term Incentive Plan, as amended and restated (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended March 31, 1996).

10.2 American Express Company 1989 Long-Term Incentive Compensation Plan Master Agreement, dated February 27, 1995 (incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K (Commission File No. 1-7657), dated November 22, 2004 (filed January 28, 2005)).

10.3 Amendment dated February 28, 2000 of American Express Company 1989 Long-Term Incentive Compensation Plan Master Agreement dated February 27, 1995 (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended March 31, 2000).

10.4 American Express Company 1998 Incentive Compensation Plan, as amended through July 25, 2005 (incorporated by reference to Exhibit 10.4 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the year ended December 31, 2005).

10.5 American Express Company 1998 Incentive Compensation Plan Master Agreement, dated April 27, 1998 (for awards made prior to January 22, 2007) (incorporated by

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reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended September 30, 2004).

10.6 Amendment of American Express Company 1998 Incentive Compensation Plan Master Agreement, dated April 27, 1998 (for awards made prior to January 22, 2007) (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended March 31, 2000).

*10.7 American Express Company 1998 Incentive Compensation Plan Master Agreement, dated January 22, 2007 (for awards made on or after such date).

*10.8 Form of award agreement for executive officers in connection with Performance Grant awards (a/k/a Incentive Award) under the American Express Company 1998 Incentive Compensation Plan, as amended.

10.9 Form of award agreement for executive officers in connection with Portfolio Grants under the American Express Company 1998 Incentive Compensation Plan, as amended (for awards made prior to January 22, 2007) (incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the year ended December 31, 2005).

10.10 Form of award agreement for executive officers in connection with Portfolio Grants under the American Express Company 1998 Incentive Compensation Plan, as amended (for awards made after January 22, 2007) (incorporated by reference to Exhibit 10.1 to the Company’s current Report on Form 8-K (Commission File No. 1-7657) dated January 22, 2007 (filed January 26, 2007)).

10.11 Description of Compensation Payable to Non-Management Directors (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (Commission File No. 1-7657), dated November 21, 2005 (filed January 13, 2006)).

10.12 American Express Company Deferred Compensation Plan for Directors, as amended through July 28, 2003 (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K (Commission File No. 1-7657), dated November 22, 2004 (filed January 28, 2005)).

*10.13 Description of amendments to 1994 – 2006 Pay-for-Performance Deferral Programs.

10.14 Description of American Express Company Pay-for-Performance Deferral Program (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K (Commission File No. l-7657), dated November 22, 2004 (filed January 28, 2005)).

10.15 American Express Company 2006 Pay-for-Performance Deferral Program Guide (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (Commission File No. 1-7657), dated November 21, 2005 (filed November 23, 2005)).

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10.16 American Express Company 2005 Pay-for-Performance Deferral Program Guide (incorporated by reference to Exhibit 10.10 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the fiscal year ended December 31, 2004).

10.17 American Express Company 2007 Pay-for-Performance Deferral Program Document (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (Commission File No. 1-7657), dated November 20, 2006 (filed November 22, 2006)).

10.18 American Express Company Retirement Plan for Non-Employee Directors, as amended (incorporated by reference to Exhibit 10.12 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the fiscal year ended December 31, 1988).

10.19 Certificate of Amendment of the American Express Company Retirement Plan for Non- Employee Directors dated March 21, 1996 (incorporated by reference to Exhibit 10.11 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the fiscal year ended December 31, 1995).

10.20 American Express Key Executive Life Insurance Plan, as amended (incorporated by reference to Exhibit 10.12 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the fiscal year ended December 31, 1991).

10.21 Amendment to American Express Company Key Executive Life Insurance Plan (incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended September 30, 1994).

*10.22 Amendment to American Express Company Key Executive Life Insurance Plan, effective as of January 22, 2007.

10.23 American Express Key Employee Charitable Award Program for Education (incorporated by reference to Exhibit 10.13 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the fiscal year ended December 31, 1990).

10.24 American Express Directors’ Charitable Award Program (incorporated by reference to Exhibit 10.14 of the Company’s Annual Report on Form 10-K (Commission File No. 1- 7657) for the fiscal year ended December 31, 1990).

10.25 American Express Company Salary/Bonus Deferral Plan (incorporated by reference to Exhibit 10.20 of the Company’s Annual Report on Form 10-K (Commission File No. 1- 7657) for the fiscal year ended December 31, 1988).

10.26 Amendment to American Express Company Salary/Bonus Deferral Plan (incorporated by reference to Exhibit 10.4 of the Company’s Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended September 30, 1994).

10.27 Tax Allocation Agreement, dated May 27, 1994, between Lehman Brothers Holdings Inc. and the Company (incorporated by reference to Exhibit 10.2 of Lehman Brothers

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Holdings Inc.’s Transition Report on Form 10-K (Commission File No. 1-9466) for the transition period from January 1, 1994 to November 30, 1994).

10.28 American Express Company 1993 Directors’ Stock Option Plan, as amended (incorporated by reference to Exhibit 10.11 of the Company’s Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended March 31, 2000).

10.29 American Express Senior Executive Severance Plan Effective January 1, 1994 (as amended and restated through May 1, 2000) (incorporated by reference to Exhibit 10.10 of the Company’s Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended March 31, 2000).

10.30 Amendments to the American Express Senior Executive Severance Plan, effective November 26, 2001 (incorporated by reference to Exhibit 10.30 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the year ended December 31, 2001).

*10.31 Amendments to the American Express Senior Executive Severance Plan, effective January 22, 2007.

10.32 Amendment of Long-Term Incentive Awards under the American Express Company 1979 and 1989 Long-Term Incentive Plans (incorporated by reference to Exhibit 10.6 of the Company’s Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended September 30, 1994).

10.33 Amendments of (i) Long-Term Incentive Awards under the American Express Company 1979 and 1989 Long-Term Incentive Plans, (ii) the American Express Senior Executive Severance Plan, (iii) the American Express Supplemental Retirement Plan, (iv) the American Express Salary/Bonus Deferral Plan, (v) the American Express Key Executive Life Insurance Plan and (vi) the IDS Current Service Deferred Compensation Plan (incorporated by reference to Exhibit 10.37 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the fiscal year ended December 31, 1997).

10.34 American Express Supplemental Retirement Plan Amended and Restated Effective March 1, 1995 (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended September 30, 1999).

10.35 American Express Supplemental Retirement Plan (as amended and restated effective July 1, 2007) (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K (Commission File No. 1-7657), dated January 22, 2007 (filed January 26, 2007)).

10.36 American Express Directors’ Stock Plan (incorporated by reference to Exhibit 4.4 of the Company’s Registration Statement on Form S-8, dated December 9, 1997 (Commission File No. 333-41779)).

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10.37 American Express Annual Incentive Award Plan (incorporated by reference to Exhibit 10.6 of the Company’s Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended March 31, 2000).

*10.38 Amendment to American Express Annual Incentive Award Plan, effective January 22, 2007.

10.39 Agreement dated February 27, 1995 between the Company and Berkshire Hathaway Inc. (incorporated by reference to Exhibit 10.43 of the Company’s Annual Report on Form 10-K (Commission File No. 1-7657) for the fiscal year ended December 31, 1994).

10.40 Agreement dated July 20, 1995 between the Company and Berkshire Hathaway Inc. and its subsidiaries (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended September 30, 1995).

10.41 Amendment dated September 8, 2000 to the agreement dated February 27, 1995 between the Company and Berkshire Hathaway Inc. (incorporated by reference to Exhibit 99.3 of the Company’s Current Report on Form 8-K (Commission File No. 1-7657) dated January 22, 2001).

10.42 Description of a special grant of a stock option and restricted stock award to Kenneth I. Chenault, the Company’s President and Chief Operating Officer (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended June 30, 1999).

10.43 American Express Company 2003 Share Equivalent Unit Plan for Directors, as adopted and effective April 28, 2003 (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended March 31, 2003).

*10.44 Description of 2007 Base Salaries of Named Executive Officers.

10.45 Separation and Distribution Agreement between American Express Company and Ameriprise Financial, Inc., dated August 24, 2005 (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (Commission File No. 1-7657), dated August 24, 2005 (filed August 30, 2005)).

10.46 Employee Benefits Agreement, dated as of September 30, 2005, by and between American Express Company and Ameriprise Financial, Inc. (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (Commission File No. 1- 7657), dated October 6, 2005).

10.47 Tax Allocation Agreement, dated as of September 30, 2005, by and between American Express Company and Ameriprise Financial, Inc. (incorporated by reference to Exhibit

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10.2 of the Company’s Current Report on Form 8-K (Commission File No. 1-7657), dated October 6, 2005).

*12 Computation in Support of Ratio of Earnings to Fixed Charges.

*13 Portions of the Company’s 2006 Annual Report to Shareholders that are incorporated herein by reference.

*21 Subsidiaries of the Company.

*23.1 Consent of PricewaterhouseCoopers LLP (contained on page F-2 of this Annual Report on Form 10-K).

*23.2 Consent of Ernst & Young LLP (contained on page F-3 of this Annual Report on Form 10-K).

*31.1 Certification of Kenneth I. Chenault, Chief Executive Officer, pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.

*31.2 Certification of Daniel T. Henry, acting Chief Financial Officer, pursuant to Rule 13a- 14(a) promulgated under the Securities Exchange Act of 1934, as amended.

*32.1 Certification of Kenneth I. Chenault, Chief Executive Officer, and Daniel T. Henry, acting Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

E-6 EXHIBIT 10.7 EXHIBIT 10.7

[LOGO OF AMERICAN EXPRESS COMPANY]

AMERICAN EXPRESS COMPANY

1998 INCENTIVE COMPENSATION PLAN

MASTER AGREEMENT

DATED JANUARY 22, 2007 (for awards made on or after January 22, 2007)

------

Nonqualified Stock Options, Restricted Stock Awards, UK Stock Options and Letter of Intent Awards ("Awards") are issued pursuant to the 1998 Incentive Compensation Plan, as amended (the "Plan") of American Express Company (the "Company") at the discretion and subject to the administration of the Compensation and Benefits Committee, or its successor (the "Committee") of the Board of Directors of the Company (the "Board"). Awards issued on or after January 22, 2007 shall contain the general terms set forth in the applicable provisions of this Master Agreement. The specific terms of individual Awards will be contained in the Award Schedule(s) delivered to participants in the Plan (the "Participants"). All Awards shall be subject to the Plan, the Plan being incorporated into this Master Agreement by reference and made a part hereof. As used herein, the term "shares" refers to the common shares of the Company having a par value of $.60 per share, or the shares of any other stock of any other class into which such shares may thereafter be changed.

SECTION I

MASTER AGREEMENT PROVISIONS RELATING TO A GRANT OF NONQUALIFIED STOCK OPTION

1. Sections I and V of this Master Agreement, together with an Award Schedule referring to Section I of this Master Agreement, shall contain the terms of a specific Nonqualified Stock Option ("Option") issued to a Participant. Each Award Schedule shall specify the number of shares subject to the Option, the Option Date of Grant, the Option Exercise Date(s), the Option Exercise Price and any additional terms applicable to the Option. Such additional terms may address any matter deemed appropriate by the Committee or its delegate and may include terms not contained in this Master Agreement and/or may delete terms contained in this Master Agreement. A stock appreciation right is included herein only if specifically approved by the Committee and reflected in an Award Schedule.

2. Unless otherwise determined by the Committee and subject to the provisions of this Master Agreement and the applicable provisions of the Plan, a Participant may exercise this Option as follows:

(a) No part of this Option may be exercised before the first Option Exercise Date listed in the Award Schedule or after the expiration of ten years from the Date of Grant set forth in the Award Schedule;

Page 1 of 19

(b) At any time or times on or after the first Option Exercise Date listed in the Award Schedule, a Participant may exercise this Option as to any number of shares which, when added to the number of shares as to which a Participant has theretofore exercised this Option, if any, will not exceed 25% of the total number of shares covered hereby;

(c) At any time or times on or after the second Option Exercise Date listed in the Award Schedule, a Participant may exercise this Option as to any number of shares which, when added to the number of shares as to which a Participant has theretofore exercised this Option, if any, will not exceed 50% of the total number of shares covered hereby;

(d) At any time or times on or after the third Option Exercise Date listed in the Award Schedule, a Participant may exercise this Option as to any number of shares which, when added to the number of shares as to which a Participant has theretofore exercised this Option, if any, will not exceed 75% of the total number of shares covered hereby; and

(e) At any time or times on or after the fourth Option Exercise Date listed in the Award Schedule and thereafter through the expiration date of this Option, a Participant may exercise this Option as to any number of shares which, when added to the number of shares as to which the Participant has theretofore exercised this Option, if any, will not exceed the total number of shares covered hereby.

This Option may not be exercised for a fraction of a share.

3. A Participant may not exercise this Option and, if applicable, any stock appreciation right included herein, unless all of the following conditions are met:

(a) Legal counsel for the Company must be satisfied at the time of exercise that the issuance of shares upon exercise will be in compliance with the Securities Act of 1933, as amended, and applicable United States federal, state, local and foreign laws;

(b) The Participant must pay at the time of exercise the full purchase price for the shares being acquired hereunder, by (i) paying in cash in United States dollars (which may be in the form of a check), (ii) tendering shares owned by the Participant which have a fair market value equal to the full purchase price for the shares being acquired, such fair market value to be determined in such reasonable manner as may be provided from time to time by the Committee or as may be required in order to comply with the requirements of any applicable laws or regulations, or (iii) if permitted by the Committee, by authorizing a third party to sell, on behalf of the Participant, the appropriate number of shares otherwise issuable to the Participant upon the exercise of this Option and to remit to the Company a sufficient portion of the sale proceeds to pay the entire exercise price and any tax withholding resulting from such exercise, or (iv) tendering a combination of the forms of payment provided for in this Subparagraph 3(b); and

Page 2 of 19

(c) The Participant must, at all times during the period beginning with the Date of Grant of this Option and ending on the date of such exercise, have been employed by the Company or an Affiliate (as defined in the Plan) or have been engaged in a period of Related Employment (as defined in the Plan). However, if the Participant ceases to be so employed or terminates a period of Related Employment by reason of the Participant's disability or retirement (as such terms are defined in the Plan and interpreted and administered by the Committee) while holding this Option which has not expired and has not been fully exercised, the Participant may, at any time within five years of the date of the onset of such disability (but in no event after the expiration of this Option under Paragraph 2(a) above with respect to ten years from the Date of Grant) or in the case of retirement until the expiration of the Option under Paragraph 2(a) above, exercise this Option with respect to the number of shares, after giving full effect to the gradual vesting provisions of Paragraph 2 above, as to which the Participant could have exercised this Option on the date of the onset of such disability or retirement, or with respect to such greater number of shares as determined by the Committee in its sole discretion, and any remaining portion of this Option shall be canceled by the Company. In the event the Participant's employment by the Company and its Affiliates or Related Employment terminates for reasons other than disability or retirement as described in this Subparagraph 3(c) or death as described in Paragraph 4 below, this Option shall be canceled by the Company; provided, however, if within two years following a Change in Control (as defined in Section V of this Master Agreement), a Participant is terminated under circumstances that would entitle the Participant to severance under an applicable U.S. severance plan (other than Constructive Termination, as defined in the applicable plan), the Participant may, at any time within 90 days following such termination (but in no event after the expiration of this Option under Paragraph 2(a) above with respect to ten years from the Date of Grant), exercise this Option with respect to the number of shares as to which the Participant could have exercised this Option on the date of such termination. For any other Participant not covered by a U.S. severance plan, the 90-day extension period shall apply if the Participant is terminated within two years following a Change in Control and the Participant would have been entitled to severance under the applicable U.S. severance plan had the Participant been a U.S. employee.

4. Except as otherwise determined by the Committee, a Participant may not assign, transfer, pledge, hypothecate or otherwise dispose of this Option (and any stock appreciation right included herein), except by will or the laws of descent and distribution, and this Option is exercisable during the Participant's lifetime only by the Participant. If the Participant or anyone claiming under or through the Participant attempts to violate this Paragraph 4, such attempted violation shall be null and void and without effect, and the Company's obligation to make any further payments (stock or cash) hereunder shall terminate. If at the time of the Participant's death this Option has not been fully exercised, the Participant's estate or any person who acquires the right to exercise this Option by bequest or inheritance or by reason of the Participant's death may, at any time within five years after the date of the Participant's death (but in no event after the expiration of this Option under Paragraph 2(a) above with respect to ten years from the Date of Grant or the time period described in Paragraph 3(c) above with respect to disability),

Page 3 of 19 exercise this Option with respect to the number of shares, after giving full effect to the gradual vesting provisions of Paragraph 2 above, as to which the Participant could have exercised this Option at the time of the Participant's death, or with respect to such greater number of shares as determined by the Committee in its sole discretion. The Committee may, in its discretion, provide the Participant's estate, or any person acquiring the right to exercise this Option upon the Participant's death, a minimum of six months to exercise this Option without regard to the expiration of this Option under Paragraph 2(a) above. The applicable requirements of Paragraph 3 above must be satisfied at the time of such exercise.

5. In the event of any change in the outstanding shares of the Company by reason of any stock split, stock dividend, split-up, split-off, spin-off, recapitalization, merger, consolidation, rights offering, reorganization, combination, subdivision or exchange of shares, sale by the Company of all or part of its assets, distribution to shareholders other than a normal cash dividend, or other extraordinary or unusual event occurring after the Date of Grant specified in the Award Schedule and prior to its exercise in full, the Committee shall make such adjustment in the number and kind of shares for which this Option may then be exercised and the Option Exercise Price per share as may be determined to be appropriate by the Committee, in its sole discretion, so as to reflect such change, and such adjustments shall be final, conclusive and binding for all purposes of the Plan, this Master Agreement and any Award Schedule. In the event that the Company or any of its Affiliates is a participant in a corporate merger, consolidation or other similar transaction, neither the Company nor such Affiliate shall be obligated to cause any other participant in such transaction to assume this Option or to substitute a new option for this Option.

6. (a) If approved by the Committee and subject to the conditions specified in Paragraph 6(b) below, within such time or times as this Option shall be exercisable in whole or in part and to the extent that it shall then be exercisable in accordance with Paragraph 2 above, the Participant (or any person acting under Paragraph 4 above) may surrender unexercised this Option or any portion thereof which is then exercisable to the Company and receive from the Company in exchange therefor that number of shares having an aggregate value equal to 100% of the excess of the value of one share over the Option Exercise Price per share heretofore specified times the lesser of (i) the number of shares as to which this Option then is exercisable or (ii) the number of shares as to which this Option is surrendered to the Company. This right to surrender unexercised this Option or any portion thereof which is then exercisable is referred to herein as a "stock appreciation right." No fractional shares shall be delivered, but in lieu thereof a cash adjustment shall be made.

(b) If granted by the Committee, the stock appreciation right may be exercised only if, and to the extent that,

(A) this Option is at the time exercisable, and

(B) on the date of exercise (1) this Option will, in accordance with Paragraph 2(a) above, expire within 30 days, or (2) the Participant has ceased to be an employee of the Company or an Affiliate thereof or terminated a period of Related Employment by reason of the Participant's disability or retirement (as defined in the Plan), or (3) the Participant has died.

Page 4 of 19 Notwithstanding Paragraph 6(b)(ii) above, but subject to the conditions of Paragraph 6(b)(i) above, (1) the ability to exercise a stock appreciation right may be further limited to the extent determined by the Committee as necessary or desirable to comply with applicable provisions of United States federal, state, local or foreign law or regulation, and (2) if the Participant is on the date of exercise an executive officer of the Company as that term is defined in the Securities Exchange Act of 1934, as amended, and the rules thereunder (an "Insider"), the stock appreciation right may be exercised only with respect to a maximum of 50% of the shares subject to this Option granted hereunder, unless otherwise determined by the Committee.

(c) The Committee may elect from time to time in its sole discretion to settle the obligation arising out of the exercise of the stock appreciation right, by the payment of cash equal to the aggregate value of the shares it otherwise would be obligated to deliver or partly by the payment of cash and partly by the delivery of shares.

(d) For all purposes under this Paragraph 6, the value of a share shall be the fair market value thereof, as determined by the Committee, on the last business day preceding the date of the election to exercise the stock appreciation right, provided that if notice of such election is received by the Committee more than three business days after the date of such election (as such date of election is stated in the notice of election), the Committee may, but need not, determine the value of a share as of the day preceding the date on which the notice of election is received.

7. It shall be a condition to the obligation of the Company to furnish shares upon exercise of this Option or settlement of a stock appreciation right by delivery of shares and/or cash (a) that the Participant (or any person acting under Paragraph 4 above) pay to the Company or its designee, upon its demand, in accordance with Paragraph 18(f) of the Plan, such amount as may be demanded for the purpose of satisfying its obligation or the obligation of any of its Affiliates or other person to withhold United States federal, state, local or foreign income, employment or other taxes incurred by reason of the exercise of this Option or the settlement of the stock appreciation right or the transfer of shares thereupon, (b) whether the settlement of the stock appreciation right is to be made by delivery of shares or by the payment of cash, that the Participant (or any person acting under Paragraph 4 above) execute such forms as the Committee shall prescribe for the purpose of evidencing the surrender of this Option in whole or in part, as the case may be, and (c) that the Participant (or any person acting under Paragraph 4 above) provide the Company with any forms, documents or other information reasonably required by the Company in connection with the grant. The Company shall have the right to deduct or cause to be deducted from any payment made in settlement of a stock appreciation right any United States federal, state, local or foreign income, employment or other taxes that it determines are required by law to be withheld with respect to such payment. If the amount requested for the purpose of satisfying the withholding obligation is not paid, the Company may refuse to furnish shares upon exercise of this Option or shares and/or cash upon settlement of the stock appreciation right.

Page 5 of 19 SECTION II

MASTER AGREEMENT PROVISIONS RELATING TO AWARDS OF RESTRICTED STOCK

1. Sections II and V of this Master Agreement, together with an Award Schedule referring to Section II of this Master Agreement, shall contain the terms of a specific Restricted Stock Award ("RSA") issued to a Participant. Each Award Schedule shall specify the number of shares awarded, the Award Date, the Expiration Date and any additional terms applicable to the Award. Such additional terms may address any matter deemed appropriate by the Committee or its delegate and may include terms not contained in this Master Agreement and/or may delete terms contained in this Master Agreement.

2. An RSA consists of the number of shares specified in an Award Schedule and is subject to the provisions of the Plan. In addition, the following terms, conditions and restrictions apply to RSAs issued under the Plan:

(a) Except as otherwise determined by the Committee, such shares cannot be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of (except that Participants may designate a beneficiary as provided herein) on or before the Expiration Date and prior to the subsequent issuance to a Participant (or, in the event of a Participant's death, the Participant's designated beneficiary) of a certificate for such shares free of any legend or other transfer restriction relating to the terms, conditions and restrictions provided for in the Award Schedule or this Master Agreement. If a Participant or anyone claiming under or through such Participant attempts to violate this Subparagraph 2(a), such attempted violation shall be null and void and without effect, and the Company's obligation to make any further payments or deliveries (in stock or cash) hereunder shall terminate.

(b) An RSA shall be evidenced by a share certificate or an uncertificated book entry memo position maintained by the Company's transfer agent and registrar.

(c) If (i) a Participant's continuous employment with the Company and its Affiliates (as defined in the Plan) shall terminate for any reason on or before the Expiration Date, except for a period of Related Employment (as defined in the Plan), and except as provided in Paragraph 2(d) below or (ii) within the period following the Expiration Date as determined by the Committee, a Participant (or such Participant's designated beneficiary) has not paid to the Company or such Affiliate or other person an amount equal to any United States federal, state, local or foreign income, employment or other taxes which the Company determines is required to be withheld in respect of such shares, or fails to provide such information as is described in Paragraph 4 below, then, unless the Committee determines otherwise, the Participant's RSA or portion thereof shall be automatically terminated, cancelled, and rendered null and void as of the Expiration Date without any action on the part of the Company, and the Company shall be deemed to have exercised its repurchase option without the requirement of any payment, and shall be entitled to the return from such Participant (or the Participant's designated beneficiary or the Secretary of the Company) of any share certificate(s) issued in respect of the Award or the cancellation of any book entry memo position maintained by the

Page 6 of 19 Company's transfer agent and registrar with respect to a Participant's RSA.

(d) On or before the Expiration Date, the Committee shall have the authority, in its sole discretion, to determine whether and to what extent, the termination provisions of Paragraph 2(c) shall cease to be effective with respect to a Participant's Award in the following situations:

(i) a Participant shall die or have a termination of employment or Related Employment by reason of disability or retirement (as such terms are defined in the Plan and interpreted and administered by the Committee); or

(ii) in such circumstances as the Committee, in its sole discretion, shall deem appropriate if, since the Award Date, a Participant has been in the continuous employment of the Company or an Affiliate or has undertaken Related Employment.

(e) The share certificate, if any, issued in respect of a RSA shall be held in escrow by the Secretary of the Company during the period up to and including the date determined by the Committee pursuant to Paragraph 2(c) above, unless otherwise determined by the Committee.

3. In the event of any change in the outstanding shares of the Company by reason of any stock split, stock dividend, split-up, split-off, spin-off, recapitalization, merger, consolidation, rights offering, reorganization, combination, subdivision or exchange of shares, sale by the Company of all or part of its assets, distribution to shareholders other than a normal cash dividend, or other extraordinary or unusual event, or in the event a Participant (or the Participant's designated beneficiary) receives any shares, securities or other property in respect of the shares which have been awarded to a Participant (including, but not limited to, by way of a dividend or other distribution on such shares), any such shares, securities or other property received by a Participant (or a Participant's designated beneficiary) in respect of the shares awarded to such Participant shall, other than upon a Change In Control as defined in Article V, be subject to the Company's right to receive or cancel such shares, securities or other property from such Participant (or such Participant's designated beneficiary) as provided in Paragraph 2(c) above and the other terms, conditions and restrictions specified herein to the extent that, and in such manner as, the Committee shall determine, and if the Committee shall determine, in its sole discretion, that such a change equitably requires an adjustment in the terms of this Award, such adjustment may be made by the Committee. Any such determination by the Committee under this Paragraph 3 shall be final, binding and conclusive.

4. If the Company, in its sole discretion, shall determine that the Company or an Affiliate or other person has incurred or will incur any obligation to withhold any United States federal, state, local or foreign income, employment or other taxes by reason of making of the Award to a Participant, the transfer of shares to a Participant (or the Participant's designated beneficiary) pursuant thereto or the lapse or release of the termination provisions contained in Paragraph 2(c) above with respect to a Participant's Award or any other restrictions upon such shares, such Participant (or such Participant's designated beneficiary) will, promptly upon demand

Page 7 of 19 therefor by the Company, pay to the Company or such Affiliate or other person any amount demanded by it for the purpose of satisfying such liability. If the amount so demanded is not promptly paid or if such Participant (or such Participant's designated beneficiary) shall fail to promptly provide the Company with any and all forms, documents or other information reasonably required by the Company in connection with the Award, the Company or its designee may refuse to permit the transfer of such shares and may, without further consent by or notice to such Participant (or such Participant's designated beneficiary), cancel the Award and the shares otherwise issuable under the Award.

SECTION III

MASTER AGREEMENT PROVISIONS RELATING TO A GRANT OF A STOCK OPTION UNDER THE 1989 UK STOCK OPTION SCHEME (AND NOT QUALIFYING AS AN INCENTIVE STOCK UK OPTION)

1. Sections III and V of this Master Agreement, together with an Award Schedule referring to Section III of this Master Agreement, and applicable provisions of the 1989 UK Stock Option Scheme (the "Scheme"), shall contain all the terms of a specific UK Stock Option ("UK Option(s)") issued to a Participant. Each Award Schedule shall specify the number of shares subject to the UK Option, the UK Option Date of Grant, the UK Option Exercise Date(s), the UK Option Exercise Price and any additional terms applicable to the UK Option. Such additional terms may address any matter deemed appropriate by the Committee or its delegate and may include terms not contained in this Master Agreement and/or may delete terms contained in this Master Agreement.

2. Subject to the provisions of this Master Agreement and the applicable provisions of the Plan, a Participant may exercise this UK Option as follows:

(a) Unless otherwise determined by the Committee no part of this UK Option may be exercised before the first option Exercise Date listed in the Award Schedule or after the expiration of ten years from the Date of Grant set forth in the Award Schedule;

(b) At any time or times on or after the first option Exercise Date listed in the Award Schedule, a Participant may exercise this UK Option as to any number of shares which, when added to the number of shares as to which a Participant has theretofore exercised this UK Option, if any, will not exceed 25% of the total number of shares covered hereby;

(c) At any time or times on or after the second Option Exercise Date listed above, a Participant may exercise this UK Option as to any number of shares which, when added to the number of shares as to which a Participant has theretofore exercised this UK Option, if any, will not exceed 50% of the total number of shares covered hereby;

(d) At any time or times on or after the third Option Exercise Date listed above, a Participant may exercise this UK Option as to any number of shares which, when added to the number of shares as to which a Participant has theretofore exercised this UK Option, if any, will not exceed 75% of the total number of shares covered hereby; and

(e) At any time or times after the fourth Option Exercise Date

Page 8 of 19 listed above and thereafter through the tenth year after the Date of Grant hereof, a Participant may exercise this UK Option as to any number of shares which, when added to the number of shares as to which a Participant has theretofore exercised this UK Option, if any, will not exceed the total number of shares covered hereby.

This UK Option may not be exercised for a fraction of a share.

3. This UK Option may not be exercised by a Participant unless all of the following conditions are met:

(a) Legal counsel for the Company must be satisfied at the time of exercise that the issuance of shares upon exercise will be in compliance with the Securities Act of 1933, as amended, and applicable United States federal, state, local and foreign laws;

(b) The Participant must pay at the time of exercise the full subscription price for the shares being acquired hereunder, by (i) paying in cash in United States dollars (which may be in the form of a check); (ii) tendering shares owned by the Participant which have a fair market value equal to the full subscription price for the shares being acquired, such fair market value to be determined in such reasonable manner as may be provided from time to time by the Committee or as may be required in order to comply with the requirements of any applicable laws or regulations; (iii) if permitted by the Committee, by authorizing a third party to sell, on behalf of the Participant, the appropriate number of shares otherwise issuable to the Participant upon the exercise of the UK Option and to remit to the Company a sufficient portion of the sale proceeds to pay the entire exercise price and any tax withholding resulting from such exercise; or (iv) tendering a combination of the forms of payment provided for in this Subparagraph; and (c) The Participant must, at all times during the period beginning with the Date of Grant and ending on the date of such exercise, have been employed by the Company or an Affiliate (as defined in the Scheme) or have been engaged in a period of Related Employment (as defined in the Scheme). However, if a Participant ceases to be so employed or terminates a period of Related Employment by reason of a Participant's disability or retirement (as such terms are defined in the Scheme and interpreted and administered by the Committee) while holding this UK Option which has not expired and has not been fully exercised, a Participant may, at any time within five years of the date of the onset of such disability (but in no event after the expiration of this UK Option under Paragraph 2(a) above with respect to ten years from the Date of Grant), or in the case of retirement until the expiration of this UK Option under Paragraph 2(a), exercise this UK Option with respect to the number of shares, after giving full effect to the gradual vesting provisions of Paragraph 2 above, as to which a Participant could have exercised the UK Option on the date of the onset of such disability or retirement, or with respect to such number of shares adjusted pursuant to Clause 8 of the Scheme, and any remaining portion of this UK Option shall be canceled by the Company. In the event a Participant's employment by the Company and its Affiliates or a Participant's Related Employment terminates for reasons other than disability or retirement as described in this Subparagraph 3(c) or death as described in Paragraph 4 below, this UK Option shall be canceled by the Company.

Page 9 of 19

4. Except as otherwise determined by the Committee, a Participant may not sell, assign, transfer, pledge, hypothecate or otherwise dispose of this UK Option, except by will or the laws of descent and distribution and is exercisable during the Participant's lifetime only by a Participant. If a Participant or anyone claiming under or through a Participant attempts to violate this Paragraph 4, such attempted violation shall be null and void and without effect, and the Company's obligation to make any further payments hereunder shall terminate. If at the time of the Participant's death this UK Option has not been fully exercised, the Participant's estate or any person who acquires the right to exercise this UK Option by bequest or inheritance or by reason of the Participant's death may, at any time within five years after the date of the Participant's death (but in no event after the expiration of this UK Option under Paragraph 2(a) above with respect to ten years from the Date of Grant or expiration under the time periods described in Paragraph 3(c) above with respect to disability or retirement), exercise this UK Option with respect to the number of shares, after giving full effect to the gradual vesting provisions of Paragraph 2 above, as to which a Participant could have exercised this UK Option at the time of the Participant's death, or such number of shares adjusted pursuant to Clause 8 of the Scheme, and any remaining portion of this UK Option shall be canceled by the Company. The Committee may, in its discretion, provide the Participant's estate, or any person acquiring the right to exercise this Option upon the Participant's death, a minimum of six months to exercise this Option without regard to the expiration of this Option under Paragraph 3(a) above. The applicable requirements of Paragraph 3 above must be satisfied at the time of such exercise.

5. In the event of any change in the outstanding shares of the Company by reason of any stock split, stock dividend, split-up, recapitalization, merger, consolidation, rights offering, reorganization, combination, subdivision or exchange of shares, sale by the Company of all or part of its assets, distribution to shareholders other than a normal cash dividend or other extraordinary or unusual event occurring after the Date of Grant specified above and prior to its exercise in full, the Committee shall make such adjustment in the number and kind of shares for which this UK Option may then be exercised and the subscription price per share as may be determined to be appropriate by the Committee, in its sole discretion, subject to the prior approval of the Inland Revenue in writing, so as to reflect such change, and such adjustments shall be final, conclusive and binding for all purposes of the Plan, this Master Agreement and any Award Schedule. In the event that the Company or any of its Affiliates is a participant in a corporate merger, consolidation or other similar transaction, neither the Company nor such Affiliate shall be obligated to cause any other participant in such transaction to assume this UK Option or to substitute a new option for this UK Option.

6. It shall be a condition to the obligation of the Company to furnish shares upon exercise of this UK Option (a) that a Participant (or any person acting under Paragraph 4 above) pay to the Company or its designee, upon its demand, in accordance with Clause 5(b) of the Scheme, such amount as may be demanded for the purpose of satisfying its obligation or the obligation of any of its Affiliates or other person to withhold United Kingdom taxes, United States federal, state, local or foreign income, employment or other taxes incurred by reason of the exercise of this UK Option or the transfer of shares thereupon and (b) that a Participant (or any person acting under Paragraph 4 above) provide the Company with any forms, documents or other information reasonably required by the Company in connection with the grant. If the amount requested for the purpose of satisfying the withholding obligation is not paid,

Page 10 of 19 the Company may refuse to furnish shares upon exercise of this UK Option.

7. It is hereby certified that this instrument falls within category L in the Schedule to the Stamp Duty (Exempt Instruments) Regulations 1987.

8. The terms of this UK Option are subject to the terms of the Scheme, which provides that the Committee may at any time alter or add to the terms of any UK Option granted under the Scheme, and if such an alteration or amendment is made at a time when the Scheme is approved by the Inland Revenue under Schedule 9 to the Taxes Act 1988, the approval will not thereafter have effect unless the Inland Revenue has approved the alteration or addition; provided that no alteration or addition to the terms of any UK Option granted under the Scheme (other than one which causes the Scheme to cease to hold Inland Revenue approval under Schedule 9) shall adversely affect in a material manner any right of a Participant with respect to any UK Option granted hereunder without a Participant's written consent, unless the Committee determines in its sole discretion that there have occurred or are about to occur significant changes in a Participant's position, duties or responsibilities, or significant changes in economic, legislative, regulatory, tax, accounting or cost/benefit conditions which are determined by the Committee in its sole discretion to have or to be expected to have a substantial effect on the performance of the Company, or any subsidiary, Affiliate, division or department thereof, on the Plan, the Scheme or on this UK Option. The Committee reserves the right to make amendments which will result in the Inland Revenue approval not having effect if it in its sole discretion considers that this is in the interests of the Company or any of its Affiliates.

SECTION IV

MASTER AGREEMENT PROVISIONS RELATING TO AWARDS OF A LETTER OF INTENT

1. Sections IV and V of this Master Agreement, together with an Award Schedule referring to Section IV of this Master Agreement, shall contain the terms of a specific Letter of Intent ("LOI") issued to a Participant. Each Award Schedule shall specify the number of shares to be awarded, the LOI Date, the Expiration Date and any additional terms applicable to the Award. Such additional terms may address any matter deemed appropriate by the Committee or its delegate and may include terms not contained in this Master Agreement and/or may delete terms contained in this Master Agreement.

2. Subject to the provisions of the Plan and the following terms, conditions and restrictions herein set forth, the Company will issue to a Participant a certificate for the number of shares specified in an Award Schedule as promptly as practicable after the last day of a period of four years from the LOI Date (the "Restricted Period"):

(a) Except as otherwise determined by the Committee, rights under this LOI may not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of, except by will or the laws of descent and distribution, on or before the last day of the Restricted Period and prior to the subsequent issuance to a Participant (or, in the event of a Participant's death, the Participant's designated beneficiary) of a certificate for such shares free of any legend or other transfer restriction relating to the terms, conditions and restrictions provided for in this Master Agreement. If a Participant or anyone claiming under or through a Participant attempts to violate this

Page 11 of 19 Subparagraph 2(a), such attempted violation shall be null and void and without effect, and the Company's obligations hereunder shall terminate.

(b) If (i) a Participant's continuous employment with the Company and its Affiliates (as defined in the Plan) shall terminate for any reason on or before the last day of the Restricted Period, except for a period of Related Employment (as defined in the Plan), and except as provided in Paragraph 2(c) below, or (ii) within the period following the last day of the Restricted Period as determined by the Committee, a Participant (or such Participant's designated beneficiary) has not paid to the Company or such Affiliate or other person an amount equal to any United States federal, state, local or foreign income, employment or other taxes which the Company determines is required to be withheld in respect of such shares, or fails to provide such information as is described in Paragraph 4 below, then, unless the Committee determines otherwise, this LOI or portion thereof shall be automatically terminated, cancelled, and rendered null and void as of the last day of the Restricted Period without any action on the part of the Company.

(c) If a Participant shall, on or before the last day of the Restricted Period, die or have a termination of employment or Related Employment by reason of disability or retirement (as such terms are defined in the Plan and interpreted and administered by the Committee), or by reason of such other circumstances as the Committee, in its sole discretion, shall deem appropriate, after a Participant have been, since the LOI Date, in the continuous employment of the Company or an Affiliate or have undertaken Related Employment, the Committee, in its sole discretion, shall determine whether and to what extent, if any, the Company's right as specified in Paragraph 2(b) above (and in any and all other terms, conditions and restrictions imposed hereby) shall lapse and cease to be effective. The Company's right specified in Paragraph 2(b) above shall be exercisable at such time as to the remaining shares, if any.

(d) From time to time during the Restricted Period, the Company shall pay to a Participant an amount of cash equal to the regular quarterly cash dividend paid by the Company on a number of shares equal to the number of shares remaining to be issued to a Participant hereunder less any applicable United States federal, state, local or foreign income, employment or other taxes that the Company determines are required to be withheld therefrom. The Company's obligation to make such payment shall cease with respect to any shares at such time as the Company's right becomes exercisable with respect thereto pursuant to Paragraph 2(b) or 2(c) above.

2. In the event of any change in the outstanding shares of the Company by reason of any stock split, stock dividend, split-up, split-off, spin-off, recapitalization, merger, consolidation, rights offering, reorganization, combination, subdivision or exchange of shares, sale by the Company of all or part of its assets, distribution to shareholders other than a normal cash dividend, or other extraordinary or unusual event occurring after the LOI Date and on or before the last day of the Restricted Period and prior to the issuance of a share certificate to a Participant, the Committee shall make such adjustment in the number and kind of shares to be awarded as may be determined to be appropriate by the Committee, in its sole discretion, so as to reflect

Page 12 of 19 such change, and such adjustments shall be final, conclusive and binding for all purposes of the Plan, this Master Agreement and any Award Schedule.

3. If the Company, in its sole discretion, shall determine that the Company or an Affiliate or other person has incurred or will incur any obligation to withhold any United States federal, state, local or foreign income, employment or other taxes by reason of the issuance or operation of this LOI, a Participant (or, in the event of a Participant's death, the legal representatives of a Participant's estate) will, promptly upon demand therefor by the Company, pay to the Company or such Affiliate or other person, in accordance with Subparagraph 18(f) of the Plan, any amount demanded by it for the purpose of satisfying such obligation. If the amount so demanded is not promptly paid or if a Participant (or, in the event of a Participant's death, the legal representatives of a Participant's estate) shall fail to promptly provide the Company with any and all forms, documents or other information reasonably required by the Company in connection with this LOI, the Company or its designee may refuse to permit the transfer of any shares and the distribution of any proceeds and may, without further consent by or notice to a Participant (or, in the event of a Participant's death, the legal representatives of a Participant's estate) cancel its agreement to issue to a Participant any shares and cancel any shares otherwise issuable hereunder.

SECTION V

MASTER AGREEMENT COMMON PROVISIONS RELATING TO MORE THAN ONE FORM OF AWARD

1. Notwithstanding anything in this Master Agreement to the contrary (but subject to those provisions in Paragraph 3 or 4 below which could reduce payments hereunder as a result of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code")), upon a Change in Control (as applicable to a particular award), the awardholder shall immediately be:

(a) with respect to any Option or UK Option issued pursuant to the Option or UK Option provisions of this Master Agreement, 100% vested in the total number of shares covered thereby such that they shall be fully exercisable;

(b) with respect to any RSA issued pursuant to the RSA provisions of this Master Agreement, 100% vested in the total number of shares covered thereby such that they shall no longer be subject to any transfer restrictions imposed by this Master Agreement; and

(c) with respect to any LOI issued pursuant to the LOI provisions of this Master Agreement, entitled to receive the total number of shares covered thereby such that they shall no longer be subject to any restrictions on issuance imposed by this Master Agreement.

The Committee may not amend or delete this Section V of this Master Agreement in a manner that is detrimental to the awardholder, without his written consent.

2. A "Change in Control" means the happening of any of the following:

(a) Any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") becomes the beneficial owner

Page 13 of 19 (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of either (i) the then outstanding common shares of the Company (the "Outstanding Company Common Shares") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that such beneficial ownership shall not constitute a Change in Control if it occurs as a result of any of the following acquisitions of securities: (A) any acquisition directly from the Company; (B) any acquisition by the Company or any corporation, partnership, trust or other entity controlled by the Company (a "Subsidiary"); (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary; (D) any acquisition by an underwriter temporarily holding Company securities pursuant to an offering of such securities; (E) any acquisition by an individual, entity or group that is permitted to, and actually does, report its beneficial ownership on Schedule 13-G (or any successor schedule), provided that, if any such individual, entity or group subsequently becomes required to or does report its beneficial ownership on Schedule 13D (or any successor schedule), then, for purposes of this subsection, such individual, entity or group shall be deemed to have first acquired, on the first date on which such individual, entity or group becomes required to or does so report, beneficial ownership of all of the Outstanding Company Common Stock and Outstanding Company Voting Securities beneficially owned by it on such date; or (F) any acquisition by any corporation pursuant to a reorganization, merger or consolidation if, following such reorganization, merger or consolidation, the conditions described in clauses (i), (ii) and (iii) of Paragraph 2(c) are satisfied. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") became the beneficial owner of 25% or more of the Outstanding Company Common Shares or Outstanding Company Voting Securities as a result of the acquisition of Outstanding Company Common Shares or Outstanding Company Voting Securities by the Company which, by reducing the number of Outstanding Company Common Shares or Outstanding Company Voting Securities, increases the proportional number of shares beneficially owned by the Subject Person; provided, that if a Change in Control would be deemed to have occurred (but for the operation of this sentence) as a result of the acquisition of Outstanding Company Common Shares or Outstanding Company Voting Securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the beneficial owner of any additional Outstanding Company Common Shares or Outstanding Company Voting Securities which increases the percentage of the Outstanding Company Common Shares or Outstanding Company Voting Securities beneficially owned by the Subject Person, then a Change in Control shall then be deemed to have occurred; or

(b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest or other actual or

Page 14 of 19 threatened solicitation of proxies or consents by or on behalf of a Person other than the Board, including by reason of agreement intended to avoid or settle any such actual or threatened contest or solicitation; or

(c) The consummation of a reorganization, merger, statutory share exchange, consolidation, or similar corporate transaction involving the Company or any of its direct or indirect Subsidiaries (each a "Business Combination"), in each case, unless, following such Business Combination, (i) the Outstanding Company Common Shares and the Outstanding Company Voting Securities immediately prior to such Business Combination, continue to represent (either by remaining outstanding or being converted into voting securities of the resulting or surviving entity or any parent thereof) more than 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from Business Combination (including, without limitation, a corporation that, as a result of such transaction, owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries), (ii) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company, a Subsidiary or such corporation resulting from such Business Combination or any parent or subsidiary thereof, and any Person beneficially owning, immediately prior to such Business Combination, directly or indirectly, 25% or more of the Outstanding Company Common Shares or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 25% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination (or any parent thereof) or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination (or any parent thereof) were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such Business Combination; or

(d) The consummation of the sale, lease, exchange or other disposition of all or substantially all of the assets of the Company, unless such assets have been sold, leased, exchanged or disposed of to a corporation with respect to which following such sale, lease, exchange or other disposition (i) more than 50% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation (or any parent thereof) entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Shares and Outstanding Company Voting Securities immediately prior to such sale, lease, exchange or other disposition in substantially the same proportions as their ownership immediately prior to such sale, lease, exchange or other disposition of such Outstanding Company Common Shares and Outstanding Company Voting Shares, as the case may be, (ii) no Person (excluding the Company and any employee benefit plan (or related trust)) of the Company or a Subsidiary or of such corporation or a subsidiary thereof and any Person beneficially

Page 15 of 19 owning, immediately prior to such sale, lease, exchange or other disposition, directly or indirectly, 25% or more of the Outstanding Company Common Shares or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 25% or more of respectively, the then outstanding shares of common stock of such corporation (or any parent thereof) and the combined voting power of the then outstanding voting securities of such corporation (or any parent thereof) entitled to vote generally in the election of directors and (iii) at least a majority of the members of the board of directors of such corporation (or any parent thereof) were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale, lease, exchange or other disposition of assets of the Company; or

(e) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

3. This Paragraph 3 shall apply in the event of a Change in Control.

(a) In the event that any payment or benefit received or to be received by a Participant hereunder in connection with a Change in Control or termination of such Participant's employment (such payments and benefits, excluding Gross-Up Payment (as hereinafter defined), being hereinafter referred to collectively as the "Payments"), will be subject to the excise tax referred to in Section 4999 of the Code (the "Excise Tax"), then (i) in the case of a Participant who is classified in Band 70 (or its equivalent) or above immediately prior to such Change in Control (a "Tier 1 Employee"), the Company shall pay to such Tier 1 Employee, within five days after receipt by such Tier 1 Employee of the written statement referred to in paragraph (e) below, an additional amount (the "Gross Up Payment") such that the net amount retained by such Tier 1 Employee, after deduction of any Excise Tax on the Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal to the Payments and (ii) in the case of a Participant other than a Tier 1 Employee, the Payments shall be reduced to the extent necessary so that no portion of the Payments is subject to the Excise Tax but only if (A) the net amount of all Total Payments (as hereinafter defined), as so reduced (and after subtracting the net amount of federal, state and local income and employment taxes on such reduced Total Payments), is greater than or equal to (B) the net amount of such Total Payments without any such reduction (but after subtracting the net amount of federal, state and local income and employment taxes on such Total Payments and the amount of Excise Tax to which the Participant would be subject in respect of such unreduced Total Payments); provided, however, that the Participant may elect in writing to have other components of his or her Total Payments reduced prior to any reduction in the Payments hereunder.

(b) For purposes of determining whether the Payments will be subject to the Excise Tax, the amount of such Excise Tax and whether any Payments are to be reduced hereunder: (i) all payments and benefits received or to be received by the Participant in connection with such Change in Control or the termination of such Participant's employment, whether pursuant to the terms of this Master Agreement or any other plan, arrangement or agreement with the Company, any Person (as such term is defined in Paragraph 2(a) above) whose actions result in such

Page 16 of 19 Change in Control or any Person affiliated with the Company or such Person (all such payments and benefits, excluding the Gross-Up Payment and any similar gross-up payment to which a Tier 1 Employee may be entitled under any such other plan, arrangement or agreement, being hereinafter referred to as the "Total Payments"), shall be treated as "parachute payments" (within the meaning of Section 280G(b)(2) of the Code) unless, in the opinion of the Firm, such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b)(2)(A) or Section 280G(b)(4)(A) of the Code; (ii) no portion of the Total Payments the receipt or enjoyment of which the Participant shall have waived at such time and in such manner as not to constitute a "payment" within the meaning of Section 280G(b) of the Code shall be taken into account; (iii) all "excess parachute payments" within the meaning of Section 280G(b)(l) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of the Firm, such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered (within the meaning of Section 280G(b)(4)(B) of the Code) in excess of the Base Amount (within the meaning of Section 280G(b)(3) of the Code) allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax; and (iv) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Firm in accordance with the principles of Sections 280G(d)(3) and (4) of the Code and regulations or other guidance thereunder. For purposes of determining the amount of the Gross Up Payment in respect of a Tier 1 Employee and whether any Payments in respect of a Participant (other than a Tier 1 Employee) shall be reduced, a Participant shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation (and state and local income taxes at the highest marginal rate of taxation in the state and locality of such Participant's residence, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes) in the calendar year in which the Gross Up Payment is to be made (in the case of a Tier 1 Employee) or in which the Payments are made (in the case of a Participant other than a Tier 1 Employee). The Firm will be paid reasonable compensation by the Company for its services.

(c) In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, then an amount equal to the amount of the excess of the earlier payment over the redetermined amount (the "Excess Amount") will be deemed for all purposes to be a loan to the Tier 1 Employee made on the date of the Tier 1 Employee's receipt of such Excess Amount, which the Tier 1 Employee will have an obligation to repay to the Company on the fifth business day after demand, together with interest on such amount at the lowest applicable Federal rate (as defined in Section 1274(d) of the Code or any successor provision thereto), compounded semi-annually (the "Section 1274 Rate") from the date of the Tier 1 Employee's receipt of such Excess Amount until the date of such repayment (or such lesser rate (including zero) as may be designated by the Firm such that the Excess Amount and such interest will not be treated as a parachute payment as previously defined). In the event that the Excise Tax is finally determined to exceed the amount taken into account hereunder in calculating the Gross-Up Payment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross Up Payment), within five business days of such determination, the Company will pay to the Tier 1

Page 17 of 19 Employee an additional amount, together with interest thereon from the date such additional amount should have been paid to the date of such payment, at the Section 1274 Rate (or such lesser rate (including zero) as may be designated by the Firm such that the amount of such deficiency and such interest will not be treated as a parachute payment as previously defined). The Tier 1 Employee and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the amount of any Gross-Up Payment.

(d) As soon as practicable following a Change in Control, the Company shall provide to each Tier 1 Employee and to each other Participant with respect to whom it is proposed that Payments be reduced, a written statement setting forth the manner in which the Total Payments in respect of such Tier 1 Employee or other Participant were calculated and the basis for such calculations, including, without limitation, any opinions or other advice the Company has received from the Firm or other advisors or consultants (and any such opinions or advice which are in writing shall be attached to the statement).

4. The terms of any RSA, Option or LOI (including terms under this Master Agreement or any Award Schedule) may be amended from time to time by the Committee in its sole discretion in any manner that it deems appropriate (including, but not limited to, acceleration of the date of payments thereunder); provided, however, that no such amendment shall adversely affect in a material manner any right of a Participant under such RSA, Option or LOI without the written consent of such Participant, unless the Committee determines in its sole discretion that there have occurred or are about to occur significant changes in such Participant's position, duties or responsibilities, or significant changes in economic, legislative, regulatory, tax, accounting or cost/benefit conditions which are determined by the Committee in its sole discretion to have or to be expected to have a substantial effect on the performance of the Company, or any subsidiary, affiliate, division, or department thereof, on the Plan or on a RSA, Option or LOI under the Plan; provided, further, however, that the Committee shall not have the authority to amend any Option held by any executive officer of the Company as defined in Rule 3(b)(7) under the Securities Exchange Act of 1934, as amended, so that the amount of compensation an executive officer could receive is not based solely on an increase in the value of shares, or to otherwise amend any Award issued to such executive officer if the amendment would cause compensation payable thereunder to be nondeductible under Section 162(m) of the Code (or any successor provision) or regulations thereunder assuming such executive officer is a covered employee for purposes of such Section.

5. Subject to the provisions of the Plan, a Participant may, by completing a form acceptable to the Company and returning it to the Corporate Secretary's Office in New York City, name a beneficiary or beneficiaries to receive any payment or exercise any rights to which such Participant may become entitled under an Award in the event of such Participant's death. A Participant may change his or her designated beneficiary or beneficiaries from time to time by submitting a new form to the Corporate Secretary's Office in New York City, to the extent permitted by law (for example, unless such Participant has made a prior irrevocable designation). If a Participant does not designate a beneficiary, or if no designated beneficiary is living on the date any amount becomes payable under an Award, such payment will be made to the legal representatives of such Participant's estate, which will be deemed to be the Participant's designated beneficiary under the Award.

Page 18 of 19

6. If the Company, in its sole discretion, shall determine that the listing upon any securities exchange or registration or qualification under any United States federal, state, local or foreign law of any shares to be delivered pursuant to an Award is necessary or desirable, delivery of such shares shall not be made in shares until such listing, registration or qualification shall have been completed. Until a certificate for some or all of the shares subject to an LOI is issued to a Participant, a Participant shall have no rights as a shareholder of the Company and, in particular, shall not be entitled to vote such shares or to receive any dividend or other distribution paid in respect thereof.

7. Notwithstanding anything to the contrary contained herein, the Committee, in its sole discretion, may approve and the Company may issue RSAs, Options, UK Options, or LOIs that are not governed by the provisions contained in this Master Agreement.

8. Any action taken or decision made by the Company, the Board, or the Committee or its delegates arising out of or in connection with the construction, administration, interpretation or effect of any provision of the Plan, the Scheme or this Master Agreement shall lie within its sole and absolute discretion, as the case may be, and shall be final, conclusive and binding on the Participant and all persons claiming under or through the Participant. By receipt of such Awards or other benefit under the Plan, the Participant and each person claiming under or through the Participant shall be conclusively deemed to have indicated acceptance and ratification of, and consent to, any action taken under the Plan or the Scheme, by the Company, the Board or the Committee or its delegates.

9. The validity, construction, interpretation, administration and effect of the Plan or the Scheme and of its rules and regulations, and rights relating to the Plan or the Scheme, and to any Award issued under this Master Agreement, shall be governed by the substantive laws, but not the of law rules, of the State of New York, in the United States of America.

10. The Committee may rescind, without further notice to the Participant, any Award issued to the Participant under the Plan in duplicate, or in error, as determined in the sole discretion of the Committee.

11. Any Award issued under this Master Agreement is subject to the terms of the Detrimental Conduct Provisions established by the Committee, and as from time to time amended.

Page 19 of 19 EXHIBIT 10.8 EXHIBIT 10.8

AMERICAN EXPRESS COMPANY 1998 INCENTIVE COMPENSATION PLAN PERFORMANCE GRANT (ALSO KNOWN AS THE 20__ INCENTIVE AWARD)

TO

------Name of Employee

, 20__ DECEMBER 31, 20__ ------Award Date Expiration Date of Award Period

We are pleased to inform you that, pursuant to the Company's 1998 Incentive Compensation Plan, as amended (the "Plan"), the Compensation and Benefits Committee (the "Committee") of the Board of Directors (the "Board") of American Express Company (the "Company"), made an award of a performance grant (also known as the 20__ Incentive Award) to you as hereinafter set forth (the "Award") under the Plan as of the award date specified above (the "Award Date"). This Award is subject to the Detrimental Conduct Provisions established by the Committee, and as from time to time amended.

1. GENERAL. You have been granted the Award subject to the provisions of the Plan and the terms, conditions and restrictions set forth in this agreement (this "Agreement"). The period beginning on the first day of the fiscal year of the Company in which the Award Date occurs and ending on the Expiration Date specified above being the "Award Period." The Schedule A Value (as that term is defined below in Subparagraph 3(b)), if any, will be determined as specified in Paragraph 3.

2. REQUIREMENT OF EMPLOYMENT. Your rights to the Cash Value and the Number of Restricted Shares or Letters of Intent, if any (as those terms are defined below) under Subparagraph 4(b) hereof, shall be provisional and shall be canceled if your continuous employment with the Company and its Affiliates or your Related Employment (as defined in the Plan) (as that term is defined in the Plan) (hereinafter collectively referred to as "employment with the American Express companies"), terminates for any reason on or before the payment date as set forth in Subparagraph 4(b). Whether and as of what date your employment with the American Express companies shall terminate if you are granted a leave of absence or commence any other break in employment intended by the Company to be temporary, shall be determined by the Committee.

3. DETERMINATION OF THE SCHEDULE A VALUE, CASH VALUE AND THE NUMBER OF RESTRICTED SHARES OR LETTERS OF INTENT.

(a) Except as otherwise provided below in this Paragraph 3 and in Paragraphs 2 and 5 hereof, there shall be paid to you in accordance with Paragraph 4 hereof, the Schedule A Value (the "Schedule A Value") as of the last day of the Award Period, if any, as provided in Subparagraph 3(b).

Page 1 of 9 (b) SCHEDULE A VALUE.

(i) Except as otherwise provided in this Paragraph 3, the Schedule A Value as of the last day of the Award Period will be equal to the amount, if any, determined by the Committee based on the performance (i.e., 20__ Return on Equity, and 20__ Earnings Per Share) of the Company, pursuant to Schedule A to this Agreement. However, in no event will the Schedule A Value be greater than the maximum value as set forth in Schedule A to this Agreement.

(ii) In the application of Schedule A to this Agreement after the end of the Award Period for purposes of determining the Schedule A Value pursuant to this Subparagraph 3(b), (A) if the 20__ Return on Equity or the 20__ Earnings Per Share is less than the level needed to have some Schedule A Value, there shall be no Schedule A Value, and (B) if the 20__ Return on Equity and the 20__ Earnings Per Share are equal to or greater than those levels needed to have some Schedule A Value and less than or equal to the maximum specified levels and are not represented on the table, the Schedule A Value shall be determined by straight-line interpolation from the amounts specified in such table immediately less than and greater than the amounts actually attained.

(iii) The Committee shall determine in its own discretion what portion of the Schedule A Value, if any (as adjusted in accordance with Subparagraph 3(c) below), shall be payable in cash (the "Cash Value"), and what portion shall be denominated in restricted shares or letters of intent of the Company ("the RSA" or "the LOI"), in accordance with Paragraph 4 below. The RSA or the LOI shall have the terms substantially as set forth in the form of restricted stock or letter of intent award granted generally under the Plan, or its successor, except that the RSA or the LOI shall vest pursuant to a period determined in the Committee's discretion, except that such vesting period shall not be less than one year from date of grant, and (B) be forfeitable only if your employment with the American Express companies terminates by reason of voluntary resignation or terminates for cause (that is, violation of the Code of Conduct as in effect from time to time) prior to the applicable vesting dates. The number of restricted shares or letters of intent of the Company comprising the RSA or the LOI (the "Number of Restricted Shares" or the "Number of Letters of Intent") shall be determined by dividing such portion of the Schedule A value so designated by the Committee, if any, by the average of the high and low market value of the shares on January 22, 20__ or such other date that the Committee approves payout of the Awards, and shall be payable in the form of an RSA or an LOI in accordance with Paragraph 4 below.

(iv) For purposes of this Award, all accounting terms are defined in accordance with generally accepted accounting principles as set forth in the Company's annual audited financial statements, except as otherwise provided below (which will take into account, in each case, the expenses and other financial effect for the applicable year(s) of performance grants under the Plan):

(A) "Net Income" means, for any given year, the after-tax net income (or loss) of the Company or of a segment or other part of the Company, as the case may be, for such year as adjusted below, as reported by the Company. The calculation of Net Income, for any given year, will be adjusted to exclude:

Page 2 of 9

o reported cumulative effect of accounting changes;

o reported income and losses from discontinued operations; and

o reported extraordinary gains and losses as determined under generally accepted accounting principles.

(B) "Average Annual Shareholders' Equity" means, for any given year, the sum of the total shareholders' equity of the Company or of a segment or other part of the Company, as the case may be, as of the first day of such year and as of the end of each month during such period (each as reported by the Company), divided by 13.

(C) "Return on Equity" means, for any given year, the Net Income for such year divided by the Average Annual Shareholders' Equity for such year.

(D) "Earnings Per Share" means, for any given year, the diluted earnings (or loss) per share of the Company for such year, as reported by the Company. The calculation of Earnings Per Share, for any given year, will be adjusted in the same fashion as Net Income for such year.

(v) To the extent permissible for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), in the event of any change in the corporate capitalization of the Company, such as by reason of any stock split, or a material corporate transaction, such as any merger of the Company into another corporation, any consolidation of the Company and one or more corporations into another corporation, any separation of the Company (including a spin-off or other distribution of stock or property by the Company), any reorganization of the Company (whether or not such reorganization comes within the definition of such term in Section 368 of the Code), or any partial or complete liquidation by the Company, other than a normal cash dividend, if the Committee shall determine that such a change equitably requires an adjustment in the calculation or terms of Return on Equity and/or Earnings Per Share, on the grounds that any such change would produce an unreasonable value, such equitable adjustment will be made by the Committee. Any such determination by the Committee to reflect such change under this subparagraph 3(b)(v) shall be final, binding and conclusive.

(c) As soon as practicable after the last day of the Award Period, the Committee may determine, in its sole discretion, that the Schedule A Value, if any (as determined above in Subparagraph 3(b)), may be adjusted downward, but in no event upward, by a percentage from 0-100% (that is, to a value of zero). In no event may the Committee amend any provision hereof so as to increase or otherwise adjust upward the Schedule A Value. In exercising its discretion to make a downward adjustment, the Committee may take into account factors such as the increase in shareholder value (as indicated, for example, by shareholder return, earnings growth and return on equity), customer satisfaction (as indicated, for example, by customer satisfaction measures, client retention and growth in products and services), employee satisfaction (as indicated, for example, by the employee values survey results), implementation of AEQL

Page 3 of 9 initiatives (as indicated, for example, by process changes that achieve significant results), achievement of reengineering initiatives (as indicated, for example, by cost savings), and such other factors deemed relevant by the Committee; provided that any such determination by the Committee need not be made in a uniform manner and may be made selectively among holders of awards of performance grants, whether or not such award holders are similarly situated.

(d) The Committee's determinations as to the Schedule A Value, the Cash Value and the Number of Restricted Shares or the Number of Letters of Intent pursuant to this Agreement shall be final, binding and conclusive upon you and all persons claiming under or through you.

4. PAYMENT OF AWARD.

(a) As soon as practicable after the last day of the Award Period, the Committee shall determine whether the conditions of Paragraphs 2 and 3 hereof have been met and, if so, shall ascertain the Schedule A Value (and any negative adjustment thereto), Cash Value and the Number of Restricted Shares or the Number of Letters of Intent, if any, in accordance with Paragraph 3 hereof.

(b) If the Committee determines that there is no Schedule A Value, this Award will be canceled. If the Committee determines that there is some Schedule A Value, however, the Cash Value as determined pursuant to Paragraph 3 hereof shall become payable to you in cash, and the Number of Restricted Shares or the Number of Letters of Intent shall be issued to you in the form of a restricted stock or letter of intent award under the Plan, within fifteen business days following the regularly scheduled payroll payment date of the applicable pay period beginning after January 31 of the year following the Award Period (or at such other time or times as the Committee shall determine as provided in Paragraph 6 below).

5. TERMINATION OF EMPLOYMENT AFTER THE AWARD PERIOD BUT ON OR BEFORE THE PAYMENT DATE. If, after the last day of the Award Period and on or before the date specified above in Subparagraph 4(b), but during a period when you have been in continuous employment with the American Express companies since the Award Date, you terminate your employment with the American Express companies for any reason, then you and all others claiming under or through you shall not be entitled to receive any amounts or awards under this Award, except as otherwise determined by the Committee in its sole discretion.

6. DEFERRAL OR ACCELERATION OF PAYMENT OF AWARD. Any payments to be made under this Award may be deferred or accelerated in such manner as the Committee shall determine; provided, however, that any such deferral or acceleration must comply with the applicable requirements of Section 409A of the Code. As to such a deferral of payment, any such payment in excess of the amount that was originally payable to you under this Agreement will be based on a reasonable interest rate or on one or more predetermined actual investments (whether or not assets associated with the amount are actually invested therein) as determined by the Committee, and as to such an acceleration of payment to you under this Agreement, any such payment will be discounted to reasonably reflect the time value of money as determined by the Committee.

7. CHANGE IN CONTROL. Notwithstanding anything in this Award to the contrary, if you have not received payment under this Award as discussed in Subparagraph 4(b) above, and within two years following a Change in Control, as that term is defined in the Company's Senior Executive Severance Plan, you experience a termination of employment that would otherwise entitle you to receive the

Page 4 of 9 payment of severance benefits under the provisions of the severance plan that you participate in as of the date of such termination of employment, then you shall be paid under this Award, within five days after the date of such termination of employment, a cash payment under this Award equal to the value of (i) (A) the average award paid or payable to you under the 20__ and 20__ Annual Incentive Award or such other annual incentive award program of the Company or one of its subsidiaries that you participated in at the time of such prior payment for the two years prior to the Change in Control, or (B) if you have not received two such awards, the most recent award paid or payable (or guideline amount payable, if you have not previously received any such award) to you under the applicable annual incentive award program of the Company or one of its subsidiaries at the time of such prior payment), multiplied by (ii) the number of full or partial months that have elapsed during the Award Period at the time of such termination of employment divided by 12.

The Committee reserves the right to amend or delete this Paragraph 7 in whole or in part at any time and from time to time; provided, that upon and following the occurrence of a Change in Control, the Committee may not amend this Paragraph 7 in a manner that is detrimental to your rights without your express written consent. Any amendment of the definition of "Change in Control" in the Senior Executive Severance Plan will be deemed to be an amendment permitted under this Paragraph.

8. TAX WITHHOLDING AND FURNISHING OF INFORMATION. There shall be withheld from any payment of cash or vesting of any restricted shares or letters of intent under this Award, such amount, if any, as the Company determines is required by law, including, but not limited to, U.S. federal, state, local or foreign income, employment or other taxes incurred by reason of making of the Award or of such payment. It shall be a condition precedent to the obligation of the Company to make payments under this Award that you (or those claiming under or through you) promptly provide the Company with all forms, documents or other information reasonably required by the Company in connection with the Award.

9. RIGHTS NOT ASSIGNABLE. Your rights and interests under the Award and the Plan may not be sold, assigned, transferred, or otherwise disposed of, or made subject to any encumbrance, pledge, hypothecation or charge of any nature, except that you may designate a beneficiary pursuant to Paragraph 10 hereof. If you (or those claiming under or through you) attempt to violate this Paragraph 9, such attempted violation shall be null and void and without effect, and the Company's obligation to make any further payments to you (or those claiming under or through you) hereunder shall terminate.

10. BENEFICIARY DESIGNATION. Subject to the provisions of the Plan, you may, by completing a form acceptable to the Company and returning it to the Corporate Secretary's Office, at 200 Vesey Street, New York, New York 10285, name a beneficiary or beneficiaries to receive any payment to which you may become entitled under this Agreement in the event of your death. You may change your beneficiary or beneficiaries from time to time by submitting a new form to the Corporate Secretary's Office at the same address. If you do not designate a beneficiary, or if no designated beneficiary is living on the date any amount or award becomes payable under this Agreement, such payment will be made to the legal representatives of your estate, which will be deemed to be your designated beneficiary under this Agreement.

11. ADMINISTRATION. Any action taken or decision made by the Company, the Board or the Committee or its delegates arising out of or in connection with the construction, administration, interpretation or effect of the Plan or this

Page 5 of 9 Agreement shall lie within its sole and absolute discretion, as the case may be, and shall be final, conclusive and binding upon you and all persons claiming under or through you. By accepting this Award or other benefit under the Plan, you and each person claiming under or through you shall be conclusively deemed to have indicated acceptance and ratification of, and consent to, any action taken or decision made under the Plan by the Company, the Board or the Committee or its delegates.

12. CHANGE IN CONTROL PAYMENTS. This Paragraph shall apply in the event of Change in Control (as defined in the American Express Senior Executive Severance Plan, as amended from time to time).

(a) In the event that any payment or benefit received or to be received by you hereunder in connection with a Change in Control or termination of your employment (such payments and benefits, excluding Gross-Up Payment (as hereinafter defined), being hereinafter referred to collectively as the "Payments"), will be subject to the excise tax referred to in Section 4999 of the Code (the "Excise Tax"), then (i) if you are classified in Band 70 (or its equivalent) or above immediately prior to such Change in Control (a "Tier 1 Employee"), the Company shall pay to such Tier 1 Employee, within five days after receipt by such Tier 1 Employee of the written statement referred to in Subparagraph (e) below, an additional amount (the "Gross-Up Payment") such that the net amount retained by such Tier 1 Employee, after deduction of any Excise Tax on the Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal to the Payments and (ii) if you are other than a Tier 1 Employee, the Payments shall be reduced to the extent necessary so that no portion of the Payments is subject to the Excise Tax but only if (A) the net amount of all Total Payments (as hereinafter defined), as so reduced (and after subtracting the net amount of federal, state and local income and employment taxes on such reduced Total Payments), is greater than or equal to (B) the net amount of such Total Payments without any such reduction (but after subtracting the net amount of federal, state and local income and employment taxes on such Total Payments and the amount of Excise Tax to which you would be subject in respect of such unreduced Total Payments); PROVIDED, HOWEVER, that you may elect in writing to have other components of your Total Payments reduced prior to any reduction in the Payments hereunder.

(b) For purposes of determining whether the Payments will be subject to the Excise Tax, the amount of such Excise Tax and whether any Payments are to be reduced hereunder: (i) all payments and benefits received or to be received by you in connection with such Change in Control or the termination of your employment, whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Person (as such term is defined in the Company's Senior Executive Severance Plan) whose actions result in such Change in Control or any Person affiliated with the Company or such Person (all such payments and benefits, excluding the Gross-Up Payment and any similar gross-up payment to which a Tier 1 Employee may be entitled under any such other plan, arrangement or agreement, being hereinafter referred to as the "Total Payments"), shall be treated as "parachute payments" (within the meaning of Section 280G(b)(2) of the Code)unless, in the opinion of the Firm, such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b)(2)(A) or Section 280G(b)(4)(A) of the Code; (ii) no portion of the Total Payments the receipt or enjoyment of which you shall have waived at such time and in such manner as not to constitute a "payment" within the meaning of Section 280G(b) of the Code shall be taken into account; (iii) all "excess parachute payments" within the meaning of Section 280G(b)(l) of the Code shall be treated as subject to the Excise Tax

Page 6 of 9 unless, in the opinion of the Firm, such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered (within the meaning of Section 280G(b)(4)(B) of the Code) in excess of the Base Amount (within the meaning of Section 280G(b)(3) of the Code) allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax; and (iv) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Firm in accordance with the principles of Sections 280G(d)(3) and (4) of the Code and regulations or other guidance thereunder. For purposes of determining the amount of the Gross-Up Payment in respect of a Tier 1 Employee and whether any Payments in respect of a Participant (other than a Tier 1 Employee) shall be reduced, shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation (and state and local income taxes at the highest marginal rate of taxation in the state and locality of your residence, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes) in the calendar year in which the Gross-Up Payment is to be made (in the case of a Tier 1 Employee) or in which the Payments are made (if you are other than a Tier 1 Employee). The Firm will be paid reasonable compensation by the Company for its services.

(c) In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, then an amount equal to the amount of the excess of the earlier payment over the redetermined amount (the "Excess Amount") will be deemed for all purposes to be a loan to the Tier 1 Employee made on the date of the Tier 1 Employee's receipt of such Excess Amount, which the Tier 1 Employee will have an obligation to repay to the Company on the fifth business day after demand, together with interest on such amount at the Section 1274 Rate from the date of the Tier 1 Employee's receipt of such Excess Amount until the date of such repayment (or such lesser rate (including zero) as may be designated by the Firm such that the Excess Amount and such interest will not be treated as a parachute payment as previously defined). In the event that the Excise Tax is finally determined to exceed the amount taken into account hereunder in calculating the Gross-Up Payment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), within five business days of such determination, the Company will pay to the Tier 1 Employee an additional amount, together with interest thereon from the date such additional amount should have been paid to the date of such payment, at the Section 1274 Rate (or such lesser rate (including zero) as may be designated by the Firm such that the amount of such deficiency and such interest will not be treated as a parachute payment as previously defined). The Tier 1 Employee and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the amount of any Gross-Up Payment.

(d) As soon as practicable following a Change in Control, the Company shall provide to each Tier 1 Employee and to each other Participant with respect to whom it is proposed that Payments be reduced, a written statement setting forth the manner in which the Total Payments in respect of such Tier 1 Employee or other Participant were calculated and the basis for such calculations, including, without limitation, any opinions or other advice the Company has received from the Firm or other advisors or consultants (and any such opinions or advice which are in writing shall be attached to the statement).

13. MISCELLANEOUS. Neither you nor any person claiming under or through you shall have any right or interest, whether vested or otherwise, in the Plan or the Award, unless and until all of the terms, conditions and provisions of the Plan and this Agreement shall have been complied with. In addition, neither the

Page 7 of 9 adoption of the Plan nor the execution of this Agreement shall in any way affect the rights and powers of any person to dismiss or discharge you at any time from employment with the American Express companies. Notwithstanding anything herein to the contrary, neither the Company nor any of its Affiliates (as that term is defined in the Plan) nor their respective officers, directors, employees or agents shall have any liability to you (or those claiming under or through you) under the Plan, this Agreement or otherwise on account of any action taken, or decision not to take any action made, by any of the foregoing persons with respect to the business or operations of the Company or any of its Affiliates (as that term is defined in the Plan), despite the fact that any such action or decision may adversely affect in any way whatsoever Average Annual Shareholders' Equity, Earnings Per Share, Net Income or other financial measures or amounts which are accrued or payable or any of your other rights or interests under this Agreement.

14. GOVERNING LAW. The validity, construction, interpretation, administration and effect of this Agreement shall be governed by the substantive laws, but not the choice of law rules, of the State of New York.

AMERICAN EXPRESS COMPANY By the Compensation and Benefits Committee of the Board of Directors:

By ------

Page 8 of 9 SCHEDULE A

20__ Incentive Awards: Proposed AXP Earnings Per Share/Return on Equity Grid for Determining Maximum Award Value

(subject to award agreement and discretionary downward adjustment)

20__ AXP EARNINGS PER SHARE (DILUTED) 20__ AXP LESS THAN $____ $____ $____ $____ $____ $____ OR MORE RETURN ON EQUITY Value Max. Value Max. Value Max. Value Max. Value Max. Value

__% OR MORE $0 $ $ $ $ $ % 0 $ $ $ $ $ % 0 $ $ $ $ $ % 0 $ $ $ $ $ % 0 $ $ $ $ $ LESS THAN __% 0 0 0 0 0 0

Note: Straight-line interpolation would apply for any actual performance level that falls between two performance levels shown on the grid.

Page 9 of 9 EXHIBIT 10.13 EXHIBIT 10.13

ADJUSTMENT OF 1994-2006 PAY-FOR-PERFORMANCE DEFERRAL PROGRAM RATES

On January 22, 2007, the Compensation and Benefits Committee (the “Compensation Committee”) of the Board of Directors of American Express Company (the “Company”) approved the adoption of revised interest crediting rate schedules (which are based on the Company's reported return on equity (“ROE”)) under the Company's 1994-2004 Pay-for-Performance Deferral Programs and its 2005 and 2006 Pay-for-Performance Deferral Programs.

For the Company's 1994-2004 Pay-for-Performance Deferral Programs, the interest schedule provides for interest crediting on amounts deferred under such plans according to a schedule based on the reported ROE of the Company for the relevant year and the Company's publicly announced long-term ROE target. As a result of the Compensation Committee's action, the interest crediting schedule for these programs is now as follows:

ROE Crediting Rate

Below Target ROE Moody's A Rate At Target ROE (currently 33%-36%) 13% Above Target ROE 16%

For the Company's 2005-2006 Pay-for-Performance Deferral Programs, the interest schedule also provides for interest crediting on amounts deferred under such plans according to a schedule based on the reported ROE of the Company for the relevant year and the Company's publicly announced long-term ROE target. As a result of the Compensation Committee's action, the interest crediting schedule for these programs is now as follows:

ROE Crediting Rate

Below Target ROE Moody's A Rate At Target ROE (currently 33%-36%) 9% Above Target ROE 11%

EXHIBIT 10.22 EXHIBIT 10.22 AMENDMENT TO AMERICAN EXPRESS COMPANY KEY EXECUTIVE LIFE INSURANCE PLAN

RESOLVED, that pursuant to Section 10.01 thereof, the American Express Company Key Executive Life Insurance Plan (the “Plan”) is amended, effective as of January 22, 2007, as follows:

1. Section 2.19 is hereby amended in its entirety to read as follows:

2.19 “Change in Control” means the happening of any of the following:

(a) Any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) becomes the beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25 percent or more of either (i) the then outstanding common shares of the Company (the “Outstanding Company Common Shares”) or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that such beneficial ownership shall not constitute a Change in Control if it occurs as a result of any of the following acquisitions of securities: (A) any acquisition directly from the Company; (B) any acquisition by the Company or any corporation, partnership, trust or other entity controlled by the Company (a “Subsidiary”); (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary; (D) any acquisition by an underwriter temporarily holding Company securities pursuant to an offering of such securities; (E) any acquisition by an individual, entity or group that is permitted to, and actually does, report its beneficial ownership on Schedule 13-G (or any successor schedule), provided that, if any such individual, entity or group subsequently becomes required to or does report its beneficial ownership on Schedule 13D (or any successor schedule), then, for purposes of this subsection, such individual, entity or group shall be deemed to have first acquired, on the first date on which such individual, entity or group becomes required to or does so report, beneficial ownership of all of the Outstanding Company Common Stock and Outstanding Company Voting Securities beneficially owned by it on such date; or (F) any acquisition by any corporation pursuant to a reorganization, merger or consolidation if, following such reorganization, merger or consolidation, the conditions described in clauses (i), (ii) and (iii) of Section 2.19(c) are satisfied. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the “Subject Person”) became the beneficial owner of 25 percent or more of the Outstanding Company Common Shares or Outstanding Company Voting Securities as a result of the acquisition of Outstanding Company Common Shares or Outstanding Company Voting Securities by the Company which, by reducing the number of Outstanding Company Common Shares or Outstanding Company Voting Securities, increases the proportional number of shares beneficially owned by the Subject Person; provided, that if a Change in Control would be deemed to have occurred (but for the operation of this sentence) as a result of the acquisition of Outstanding Company Common Shares or Outstanding Company Voting Securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the beneficial owner of any additional Outstanding Company Common Shares or Outstanding Company Voting Securities which increases the percentage of the Outstanding Company Common Shares or Outstanding Company Voting Securities beneficially owned by the Subject Person, then a Change in Control shall then be deemed to have occurred; or

Page 1 of 3 (b) Individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board, including by reason of agreement intended to avoid or settle any such actual or threatened contest or solicitation; or

(c) The consummation of a reorganization, merger, statutory share exchange, consolidation, or similar corporate transaction involving the Company or any of its direct or indirect Subsidiaries (each a “Business Combination”), in each case, unless, following such Business Combination, (i) the Outstanding Company Common Shares and the Outstanding Company Voting Securities immediately prior to such Business Combination, continue to represent (either by remaining outstanding or being converted into voting securities of the resulting or surviving entity or any parent thereof) more than 50 percent of the then-outstanding shares of common stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from Business Combination (including, without limitation, a corporation that, as a result of such transaction, owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries), (ii) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company, a Subsidiary or such corporation resulting from such Business Combination or any parent or subsidiary thereof, and any Person beneficially owning, immediately prior to such Business Combination, directly or indirectly, 25 percent or more of the Outstanding Company Common Shares or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 25 percent or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination (or any parent thereof) or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination (or any parent thereof) were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such Business Combination; or

(d) The consummation of the sale, lease, exchange or other disposition of all or substantially all of the assets of the Company, unless such assets have been sold, leased, exchanged or disposed of to a corporation with respect to which following such sale, lease, exchange or other disposition (i) more than 50 percent of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation (or any parent thereof) entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Shares and Outstanding Company Voting Securities immediately prior to such sale, lease, exchange or other disposition in substantially the same proportions as their ownership immediately prior to such sale, lease, exchange or other disposition of such Outstanding Company Common Shares and Outstanding Company Voting Shares, as the case may be, (ii) no Person (excluding the Company and any employee benefit plan (or related trust)) of the Company or a Subsidiary or of such corporation or a subsidiary thereof and any Person beneficially owning, immediately prior to such sale, lease, exchange or other disposition, directly or indirectly, 25 percent or more of the Outstanding Company Common Shares or Outstanding Company

Page 2 of 3 Voting Securities, as the case may be) beneficially owns, directly or indirectly, 25 percent or more of respectively, the then outstanding shares of common stock of such corporation (or any parent thereof) and the combined voting power of the then outstanding voting securities of such corporation (or any parent thereof) entitled to vote generally in the election of directors and (iii) at least a majority of the members of the board of directors of such corporation (or any parent thereof) were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale, lease, exchange or other disposition of assets of the Company; or

(e) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

2. Section 7.02(d)(ii) is hereby deleted in its entirety.

Page 3 of 3 EXHIBIT 10.31 EXHIBIT 10.31 AMENDMENT TO AMERICAN EXPRESS SENIOR EXECUTIVE SEVERANCE PLAN

RESOLVED, that pursuant to Section 7.1 thereof, the American Express Senior Executive Severance Plan (the “Plan”) is amended, effective as of January 22, 2007, as follows:

1. Section 1.6 is hereby amended in its entirety to read as follows:

1.6 “Change in Control” means the happening of any of the following: (a) Any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) becomes the beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25 percent or more of either (i) the then outstanding common shares of the Company (the “Outstanding Company Common Shares”) or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that such beneficial ownership shall not constitute a Change in Control if it occurs as a result of any of the following acquisitions of securities: (A) any acquisition directly from the Company; (B) any acquisition by the Company or any corporation, partnership, trust or other entity controlled by the Company (a “Subsidiary”); (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary; (D) any acquisition by an underwriter temporarily holding Company securities pursuant to an offering of such securities; (E) any acquisition by an individual, entity or group that is permitted to, and actually does, report its beneficial ownership on Schedule 13-G (or any successor schedule), provided that, if any such individual, entity or group subsequently becomes required to or does report its beneficial ownership on Schedule 13D (or any successor schedule), then, for purposes of this subsection, such individual, entity or group shall be deemed to have first acquired, on the first date on which such individual, entity or group becomes required to or does so report, beneficial ownership of all of the Outstanding Company Common Stock and Outstanding Company Voting Securities beneficially owned by it on such date; or (F) any acquisition by any corporation pursuant to a reorganization, merger or consolidation if, following such reorganization, merger or consolidation, the conditions described in clauses (i), (ii) and (iii) of Section 1.6(c) are satisfied. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the “Subject Person”) became the beneficial owner of 25 percent or more of the Outstanding Company Common Shares or Outstanding Company Voting Securities as a result of the acquisition of Outstanding Company Common Shares or Outstanding Company Voting Securities by the Company which, by reducing the number of Outstanding Company Common Shares or Outstanding Company Voting Securities, increases the proportional number of shares beneficially owned by the Subject Person; provided, that if a Change in Control would be deemed to have occurred (but for the operation of this sentence) as a result of the acquisition of Outstanding Company Common Shares or Outstanding Company Voting Securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the beneficial owner of any additional Outstanding Company Common Shares or Outstanding Company Voting Securities which increases the percentage of the Outstanding Company Common Shares or Outstanding Company Voting Securities beneficially owned by the Subject Person, then a Change in Control shall then be deemed to have occurred; or

Page 1 of 3 (b) Individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board, including by reason of agreement intended to avoid or settle any such actual or threatened contest or solicitation; or

(c) The consummation of a reorganization, merger, statutory share exchange, consolidation, or similar corporate transaction involving the Company or any of its direct or indirect Subsidiaries (each a “Business Combination”), in each case, unless, following such Business Combination, (i) the Outstanding Company Common Shares and the Outstanding Company Voting Securities immediately prior to such Business Combination, continue to represent (either by remaining outstanding or being converted into voting securities of the resulting or surviving entity or any parent thereof) more than 50 percent of the then-outstanding shares of common stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from Business Combination (including, without limitation, a corporation that, as a result of such transaction, owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries), (ii) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company, a Subsidiary or such corporation resulting from such Business Combination or any parent or subsidiary thereof, and any Person beneficially owning, immediately prior to such Business Combination, directly or indirectly, 25 percent or more of the Outstanding Company Common Shares or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 25 percent or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination (or any parent thereof) or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination (or any parent thereof) were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such Business Combination; or

(d) The consummation of the sale, lease, exchange or other disposition of all or substantially all of the assets of the Company, unless such assets have been sold, leased, exchanged or disposed of to a corporation with respect to which following such sale, lease, exchange or other disposition (i) more than 50 percent of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation (or any parent thereof) entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Shares and Outstanding Company Voting Securities immediately prior to such sale, lease, exchange or other disposition in substantially the same proportions as their ownership immediately prior to such sale, lease, exchange or other disposition of such Outstanding Company Common Shares and Outstanding Company Voting Shares, as the case may be, (ii) no Person (excluding the Company and any employee benefit plan (or related trust)) of the Company or a Subsidiary or of such corporation or a subsidiary thereof and any Person beneficially owning, immediately prior to such sale, lease, exchange or other disposition, directly or indirectly, 25 percent or more of the Outstanding Company Common Shares or Outstanding Company

Page 2 of 3 Voting Securities, as the case may be) beneficially owns, directly or indirectly, 25 percent or more of respectively, the then outstanding shares of common stock of such corporation (or any parent thereof) and the combined voting power of the then outstanding voting securities of such corporation (or any parent thereof) entitled to vote generally in the election of directors and (iii) at least a majority of the members of the board of directors of such corporation (or any parent thereof) were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale, lease, exchange or other disposition of assets of the Company; or

(e) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

2. Section 3.6 is hereby deleted in its entirety.

3. The last sentence of Section 7.1 of the Plan is hereby amended to read as follows: The foregoing sentence to the contrary notwithstanding, for a period of two years and one day after the date of an occurrence of a Change in Control, neither the Board of Directors nor the Committee may terminate this Plan or amend this Plan in a manner that is detrimental to the rights of any participant of the Plan without his or her written consent.

Page 3 of 3 EXHIBIT 10.38 EXHIBIT 10.38 AMENDMENT OF AMERICAN EXPRESS ANNUAL INCENTIVE AWARD PLAN

RESOLVED, that pursuant to Section 7.1 thereof, the American Express Senior Executive Severance Plan (the “Plan”) is amended, effective as of January 22, 2007, as follows:

1. Section (f) of Article VI is amended in its entirety to read as follows: (f) For purposes of this Plan, “Change in Control” means the happening of any of the following: (1) Any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) becomes the beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25 percent or more of either (i) the then outstanding common shares of the Company (the “Outstanding Company Common Shares”) or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that such beneficial ownership shall not constitute a Change in Control if it occurs as a result of any of the following acquisitions of securities: (A) any acquisition directly from the Company; (B) any acquisition by the Company or any corporation, partnership, trust or other entity controlled by the Company (a “Subsidiary”); (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary; (D) any acquisition by an underwriter temporarily holding Company securities pursuant to an offering of such securities; (E) any acquisition by an individual, entity or group that is permitted to, and actually does, report its beneficial ownership on Schedule 13-G (or any successor schedule), provided that, if any such individual, entity or group subsequently becomes required to or does report its beneficial ownership on Schedule 13D (or any successor schedule), then, for purposes of this subsection, such individual, entity or group shall be deemed to have first acquired, on the first date on which such individual, entity or group becomes required to or does so report, beneficial ownership of all of the Outstanding Company Common Stock and Outstanding Company Voting Securities beneficially owned by it on such date; or (F) any acquisition by any corporation pursuant to a reorganization, merger or consolidation if, following such reorganization, merger or consolidation, the conditions described in clauses (i), (ii) and (iii) of Article VI(f)(3) are satisfied. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the “Subject Person”) became the beneficial owner of 25 percent or more of the Outstanding Company Common Shares or Outstanding Company Voting Securities as a result of the acquisition of Outstanding Company Common Shares or Outstanding Company Voting Securities by the Company which, by reducing the number of Outstanding Company Common Shares or Outstanding Company Voting Securities, increases the proportional number of shares beneficially owned by the Subject Person; provided, that if a Change in Control would be deemed to have occurred (but for the operation of this sentence) as a result of the acquisition of Outstanding Company Common Shares or Outstanding Company Voting Securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the beneficial owner of any additional Outstanding Company Common Shares or Outstanding Company Voting Securities which increases the percentage of the Outstanding Company Common Shares or Outstanding Company Voting Securities beneficially owned by the Subject Person, then a Change in Control shall then be deemed to have occurred; or

Page 1 of 3 (2) Individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board, including by reason of agreement intended to avoid or settle any such actual or threatened contest or solicitation; or

(3) The consummation of a reorganization, merger, statutory share exchange, consolidation, or similar corporate transaction involving the Company or any of its direct or indirect Subsidiaries (each a “Business Combination”), in each case, unless, following such Business Combination, (i) the Outstanding Company Common Shares and the Outstanding Company Voting Securities immediately prior to such Business Combination, continue to represent (either by remaining outstanding or being converted into voting securities of the resulting or surviving entity or any parent thereof) more than 50 percent of the then-outstanding shares of common stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from Business Combination (including, without limitation, a corporation that, as a result of such transaction, owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries), (ii) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company, a Subsidiary or such corporation resulting from such Business Combination or any parent or subsidiary thereof, and any Person beneficially owning, immediately prior to such Business Combination, directly or indirectly, 25 percent or more of the Outstanding Company Common Shares or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 25 percent or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination (or any parent thereof) or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination (or any parent thereof) were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such Business Combination; or

(4) The consummation of the sale, lease, exchange or other disposition of all or substantially all of the assets of the Company, unless such assets have been sold, leased, exchanged or disposed of to a corporation with respect to which following such sale, lease, exchange or other disposition (i) more than 50 percent of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation (or any parent thereof) entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Shares and Outstanding Company Voting Securities immediately prior to such sale, lease, exchange or other disposition in substantially the same proportions as their ownership immediately prior to such sale, lease, exchange or other disposition of such Outstanding Company Common Shares and Outstanding Company Voting Shares, as the case may be, (ii) no Person (excluding the Company and any employee benefit plan (or related trust)) of the Company or a Subsidiary or of such corporation or a subsidiary thereof and any Person beneficially owning, immediately prior to such sale, lease, exchange or other disposition, directly or indirectly,

Page 2 of 3 25 percent or more of the Outstanding Company Common Shares or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 25 percent or more of respectively, the then outstanding shares of common stock of such corporation (or any parent thereof) and the combined voting power of the then outstanding voting securities of such corporation (or any parent thereof) entitled to vote generally in the election of directors and (iii) at least a majority of the members of the board of directors of such corporation (or any parent thereof) were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale, lease, exchange or other disposition of assets of the Company; or

(5) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

2. Section (g) of Article VI is hereby deleted in its entirety.

Page 3 of 3 EXHIBIT 10.44 EXHIBIT 10.44

BASE SALARIES FOR NAMED EXECUTIVE OFFICERS

On January 22, 2007, the Compensation and Benefits Committee of the Board of Directors of American Express Company (the “Company”) approved the annual base salaries (effective as of such date) of the Company's executive officers after a review of performance and competitive market data. The following table sets forth the annual base salary levels of the Company's Named Executive Officers (which officers were determined by reference to the Company's proxy statement, dated March 17, 2006) for 2007 and 2006:

Name and Position Year Base Salary

Kenneth I. Chenault 2007 $1,250,000 Chairman and Chief 2006 $1,100,000 Executive Officer

Gary L. Crittenden (1) 2007 $675,000 Former Executive Vice President 2006 $575,000 and Chief Financial Officer; Head, Global Network Services

Edward P. Gilligan 2007 $725,000 Group President 2006 $575,000 American Express International and Global Corporate Services

Alfred F. Kelly, Jr. 2007 $725,000 Group President 2006 $575,000 Consumer, Small Business and Merchant Services

Louise M. Parent 2007 $525,000 Executive Vice President 2006 $500,000 and General Counsel

______

(1) Mr. Crittenden resigned from the Company effective February 23, 2007. EXHIBIT 12 EXHIBIT 12

AMERICAN EXPRESS COMPANY

COMPUTATION IN SUPPORT OF RATIO OF EARNINGS TO FIXED CHARGES (Dollars in millions)

Years Ended December 31, 2006 2005 2004 2003 2002 Earnings: Pretax income from continuing operations $5,328 $4,248 $3,831 $3,415 $3,021 Interest expense 2,880 2,168 1,659 1,606 1,832 Other adjustments 139 150 151 154 174 Total earnings (a) $8,347 $6,566 $5,641 $5,175 $5,027

Fixed charges: Interest expense $2,880 $2,168 $1,659 $1,606 $1,832 Other adjustments 106 151 145 139 151 Total fixed charges (b) $2,986 $2,319 $1,804 $1,745 $1,983

Ratio of earnings to fixed charges (a/b) 2.80 2.83 3.13 2.97 2.54

Included in interest expense in the above computation is interest expense related to the international banking operations and the cardmember lending activities, which is netted against other investment income, net of interest and cardmember lending finance charge revenue, net of interest, respectively, in the Consolidated Statements of Income.

For purposes of the “earnings” computation, other adjustments include adding the amortization of capitalized interest, the net loss of affiliates accounted for under the equity method whose debt is not guaranteed by the Company, the minority interest in the earnings of majority- owned subsidiaries with fixed charges, and the interest component of rental expense and subtracting undistributed net income of affiliates accounted for under the equity method.

For purposes of the “fixed charges” computation, other adjustments include capitalized interest costs and the interest component of rental expense.

EXHIBIT 13 [30] FINANCIAL REVIEW [65] MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING [66] REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS [70] CONSOLIDATED STATEMENTS OF INCOME [71] CONSOLIDATED BALANCE SHEETS [72] CONSOLIDATED STATEMENTS OF CASH FLOWS [73] CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY [74] NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [111] CONSOLIDATED FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA 2006 fi nancial review american express company

FINANCIAL REVIEW In addition to funding and operating costs associated with these activities, other major expense categories The financial section of American Express Company’s are related to marketing and reward programs that add (the Company) Annual Report consists of this Financial new cardmembers and promote cardmember loyalty and Review, the Consolidated Financial Statements and spending, and provisions for anticipated cardmember the related notes that follow. The following discussion credit and fraud losses. is designed to provide perspective and understanding The Company believes that its “spend-centric” to the Company’s consolidated financial condition and business model (which focuses on generating revenues results of operations. Certain key terms are defined in primarily by driving spending on its cards and secondarily the Glossary of Selected Terminology, which begins on by finance charges and fees) has significant competitive page 60. advantages. Average spending per cardmember, which is substantially higher than for the Company’s EXECUTIVE OVERVIEW competitors, represents greater value to merchants in the American Express Company is a leading global form of loyal customers and higher sales. This gives the payments, network, and travel company. The Company Company the ability to earn a premium discount rate offers a broad range of products and services including and invest in greater value-added services for merchants charge and credit cards; stored value products such as and cardmembers. As a result of the higher revenues Travelers Cheques and gift cards; travel agency services; generated from higher spending, the Company has the travel and business expense management products and flexibility to offer more attractive rewards and other services; network services and merchant acquisition and incentives to cardmembers, which in turn create an merchant processing for the Company’s network partners incentive to spend more on their cards. and proprietary payments businesses; lending products; The Company creates shareholder value by focusing point-of-sale and back-office products and services for on the following elements: merchants; magazine publishing; and international • Driving growth principally through organic banking products. The Company’s various products and opportunities and related business strategies, as well [ 30 ] services are sold globally to diverse customer groups, as joint ventures and selected acquisitions; including consumers, small businesses, mid-market companies, large corporations, and banking institutions. • Delivering returns well in excess of the Company’s These products and services are sold through various cost of capital; and channels including direct mail, on-line applications, • Distributing excess capital to shareholders through targeted sales forces, and direct response advertising. dividends and stock repurchases. The Company generates revenue from a variety of Overall, it is management’s priority to increase sources including payment products, such as charge and shareholder value over the moderate to long term by credit cards, travel services, and stored value products, achieving the following long-term financial targets, on including Travelers Cheques. Charge and credit cards average and over time: generate four types of revenue for the Company: • Earnings per share growth of 12 to 15 percent; • Discount revenue, which is the Company’s largest revenue source, represents fees charged to merchants • Revenue growth of at least 8 percent; and when cardmembers use their cards to purchase goods • Return on average equity (ROE) of 33 to 36 percent. and services on the Company’s network; After the completion of the spin-off of Ameriprise Finance charge revenue, which is earned on • Financial, Inc. (Ameriprise) in 2005, the Company outstanding balances related to the cardmember raised its ROE target to 28 to 30 percent from its previous lending portfolio; target of 18 to 20 percent. Based on the Company’s recent • Card fees, which are earned for annual membership, financial performance and expectations regarding future and other commissions and fees such as foreign performance, the Company’s on average and over time exchange conversion fees and card-related fees and targeted ROE was increased again in late 2006 to 33 to assessments; and 36 percent. The new ROE target reflects the success • Securitization income, net which reflects the net of the Company’s spend-centric business model and earnings related to cardmember loans financed its effectiveness in capturing high spending consumer, through securitization activities. Refer to the small business, and corporate cardmembers. Glossary for further information. 2006 fi nancial review american express company

For 2006 and 2005, the Company met or exceeded On September 30, 2005, the Company completed management’s targets for earnings per share, revenue, the spin-off of Ameriprise, formerly known as American and ROE, illustrating the success of investments made Express Financial Corporation, the Company’s over the past few years. Reported ROE for 2006 was 35 financial planning and financial services business. In percent. Reported ROE for 2005, including discontinued addition, during the third quarter of 2005, the Company operations (prior to disposal), was 25 percent, which completed certain dispositions including the sale of its exceeded the Company’s target prior to the spin-off. tax, accounting, and consulting business, American Express Tax and Business Services, Inc. (TBS). The ACQUISITIONS AND DIVESTITURES operating results and cash flows related to Ameriprise Effective December 31, 2006, the Company acquired and certain dispositions (including TBS) have been Harbor Payments, Inc. (Harbor Payments) for reflected as discontinued operations in the Consolidated approximately $150 million, which was paid primarily Financial Statements. in the Company’s common stock. Harbor Payments is a technology provider that specializes in electronic SEGMENT REPORTING invoice and payment capabilities. The acquisition The Company is a leading global payments, network, and is reflected in the International Card & Global travel company that is principally engaged in businesses Commercial Services segment. comprising three reportable operating segments: U.S. During the third quarter of 2006, the Company Card Services, International Card & Global Commercial completed the sale of its card and merchant-related Services, and Global Network & Merchant Services. activities in Malaysia to Maybank, and its card and The Company considers a combination of factors merchant-related activities in Indonesia to Bank when evaluating the composition of its reportable Danamon, for combined proceeds of $94 million. operating segments and the aggregation of operating The transactions generated a gain of $33 million ($24 segments with similar attributes (in all material respects), million after-tax), and are reported as a reduction to including economic characteristics, products and services other expenses in the Company’s continuing operations. offered, classes of customers, product distribution The gain is reported within the International Card & channels, geographic considerations (primarily U.S. [ 31 ] Global Commercial Services segment. versus international), and regulatory environment On June 30, 2006, the Company completed the considerations. sale of its card and merchant-related activities, and U. S . C a r d S e r v ic e s i s s u e s a w id e r a n g e of c a r d p r o du c t s international banking activities in Brazil to Banco and services to consumers and small businesses in the Bradesco S.A. (Bradesco), for approximately $470 U.S., provides consumer travel services to cardmembers million. The transaction generated a net after-tax and other consumers, and also issues Travelers Cheques gain of $109 million. $144 million ($131 million and other prepaid products on a global basis. after-tax) of the gain relates to the card and merchant- International Card & Global Commercial Services related activities sold and is reported as a reduction to issues proprietary consumer and small business cards other operating expenses in the Company’s continuing outside the U.S., offers global corporate payment and operations ($119 million in the International Card & travel-related products and services, and provides Global Commercial Services segment and $25 million international banking services through American in the Global Network & Merchant Services segment). Express Bank Ltd. A $22 million after-tax loss related to the sale of the Global Network & Merchant Services operates Company’s international banking activities to Bradesco a global merchant services business, which includes is reported in discontinued operations. These banking signing merchants to accept cards as well as processing activities previously were reflected in the International and settling card transactions for those merchants. This Card & Global Commercial Services segment. Financial segment also offers merchants point-of-sale and back- results for these operations, prior to the second quarter office products, services, and marketing programs and of 2006, were not reclassified as discontinued operations also manages a global general-purpose charge and credit because such results are not material. card network, which includes both proprietary cards and The Company will continue to maintain its presence cards issued under network partnership agreements. in the card and merchant-related businesses within Malaysia, Indonesia, and Brazil through its Global Network Services arrangements with acquirers. 2006 fi nancial review american express company

Corporate & Other consists of corporate functions The Company follows U.S. generally accepted and auxiliary businesses, including the Company’s accounting principles (GAAP). In addition to publishing business, and for 2004, the leasing product information provided on a GAAP basis, the Company line of the Company’s small business financing unit, discloses certain data on a “managed basis.” This which was sold in 2004. information, which should be read only as a supplement to GAAP information, assumes, in the Consolidated FINANCIAL SUMMARY Selected Statistical Information and U.S. Card Services A summary of the Company’s recent financial segment, there have been no cardmember lending performance follows: securitization transactions, and certain tax-exempt investment income had been earned on a taxable basis. Years Ended December 31, Percent (Millions, except per share Increase These managed basis adjustments, and management’s amounts and ratio data) 2006 2005 (Decrease) rationale for such presentation, are discussed further in Net revenues $27,136 $24,068 13% the U.S. Card Services section below under “Differences Expenses $21,808 $19,820 10 between GAAP and Managed Basis Presentation.” Income from Certain reclassifications of prior period amounts continuing operations $3,729$ 3,221 16 have been made to conform to the current presentation Net income $3,707$ 3,734 (1) throughout this Annual Report, including revenue Earnings per common and expense reclassifications contained in the current share from continuing operations — diluted $ 3.01 $ 2.56 18 report on Form 8-K dated April 5, 2006. In addition, beginning prospectively as of July 1, 2006, certain card Earnings per common share — diluted $2.99$ 2.97 1 acquisition-related costs were reclassified from other Return on average equity(a) 34.7% 25.4% expense to a reduction in net card fees. Certain of the statements in this Annual Report are forward-looking (a) Calculated based on $3.7 billion of net income in both years, and $10.7 billion and $14.7 billion of average shareholders’ equity statements within the meaning of the Private Securities for the trailing twelve months ending December 31, 2006 and Litigation Reform Act of 1995. See Forward-Looking [ 32 ] 2005, respectively. Statements at the end of this discussion. See Consolidated Results of Operations, beginning on page 36 for discussion of the Company’s results. 2006 fi nancial review american express company

CRITICAL ACCOUNTING POLICIES The Company’s significant accounting policies are described in Note 1 to the Consolidated Financial Statements. The following chart provides information about three critical accounting policies that are important to the Consolidated Financial Statements and that require significant management assumptions and judgments.

RESERVES FOR CARDMEMBER LOSSES

Effect if Actual Results Differ Description Assumptions/Approach Used from Assumptions Reserves for losses relating to Reserves for these losses are primarily To the extent historical credit experience cardmember loans and receivables based upon models that analyze specific is not indicative of future performance, represent management’s estimate of portfolio statistics, including average actual loss experience could differ the losses inherent in the Company’s write-off rates for various stages of significantly from management’s outstanding portfolio of loans receivable aging (i.e., current, 30 days, 60 judgments and expectations, resulting in and receivables. days, 90 days) over a 24-month period either higher or lower future provisions and average bankruptcy and recovery for losses, as applicable. rates. Cardmember loans and receivables As of December 31, 2006, an are generally written off when they are increase in write-offs equivalent to 20 past due 180 and 360 days, respectively. basis points of cardmember loan and Also, to a lesser extent, these reserves receivable balances at such date would reflect management’s judgment regarding increase the provision for losses by overall reserve adequacy. Management approximately $160 million. considers whether to adjust reserves that are calculated by the analytic models based on other factors, such as the level of coverage of past-due accounts, as well as leading economic and market indicators, such as the unemployment rate, the consumer confidence index, the [ 33 ] purchasing manager’s index, bankruptcy filings and the legal and regulatory environment. 2006 fi nancial review american express company

RESERVE FOR MEMBERSHIP REWARDS COSTS

Effect if Actual Results Differ Description Assumptions/Approach Used from Assumptions The Membership Rewards program is the The reserve for Membership Rewards The balance sheet reserve for largest card-based rewards program in the is estimated using models that analyze unredeemed points is impacted industry. Eligible cardmembers can earn historical redemption statistics and over time by enrollment levels, points for purchases charged and many reflect, to a lesser extent, management’s the number of points earned and cards offer the ability to earn bonus points judgment regarding overall adequacy. The redeemed, the weighted-average cost for certain types of purchases. Membership provision for the cost of Membership per point, redemption choices made Rewards points are redeemable for a Rewards is based upon points earned by cardmembers, reward offerings by broad variety of rewards, including travel, that are expected to ultimately be partners and other Membership Rewards entertainment, retail certificates and redeemed by cardmembers and the program changes. The calculation merchandise. Points have no expiration current weighted-average cost per point is most sensitive to changes in the date and there is no limit on the number of redemption. The estimated points to estimated ultimate redemption rate. This of points a cardmember may earn. A be redeemed are based on many factors, rate is based on the expectation that a majority of spending by cardmembers including past redemption behavior of large majority of all points earned will earns points under this program. While cardmembers who have left the program eventually be redeemed. cardmember spend, redemption rates, and in the past five years, card product type, As of December 31, 2006, if the the related expense have been increasing, year of program enrollment, and card global ultimate redemption rate changed the Company benefits through higher spend level. The weighted-average by 100 basis points, the balance sheet revenues, lower cardmember attrition and cost per point is affected by the mix of reserve would change by approximately credit losses and more timely payments. rewards redeemed. $175 million. The Company establishes balance The Company continually evaluates sheet reserves to cover the cost of future its reserve methodology and assumptions reward redemptions for points earned based on developments in redemption to date. The provision for the cost of patterns, cost per point redeemed, and Membership Rewards is included in other factors. marketing, promotion, rewards and [ 34 ] cardmember services. 2006 fi nancial review american express company

ASSET SECURITIZATIONS

Effect if Actual Results Differ Description Assumptions/Approach Used from Assumptions When the Company securitizes Estimates and assumptions are generally Changes in the estimates and cardmember loans, certain estimates and based on projections of finance charges assumptions used may have an impact on assumptions are required to determine and fees paid related to the securitized the Company’s gain or loss calculation the fair value of the Company’s assets, expected credit losses, average and the valuation of its subordinated subordinated retained interests, including loan life (i.e., monthly payment rate), the retained interests. Management believes an interest-only strip, and gains or losses contractual fee to service the securitized that the fair value of the subordinated recorded at the time of sale. assets, and a discount rate applied to interest is most sensitive to changes in the cash flows from the subordinated the monthly payment rate, expected retained interests which is commensurate credit losses, and cash flow discount rate. with the inherent risk. As of December 31, 2006, the total fair value of all subordinated retained interests was $266 million. The three key economic assumptions and the sensitivity of the current year’s fair value of the interest-only strip to immediate 10 percent and 20 percent adverse changes in these assumptions are as follows: Cash Flows from Interest- Monthly Expected only Strips (Millions, except Payment Credit Discounted rates per annum) Rate Losses at Assumption 25.6% 2.6% 12.0% 10% adverse [ 35 ] change $(17) $(12) $(0.5) 20% adverse change $(33) $(24) $(1.0)

These sensitivities are hypothetical. Management cannot extrapolate changes in fair value based on a 10 percent or 20 percent change in all key assumptions simultaneously in part because the relationship of the change in one assumption on the fair value of the retained interest is calculated independent from any change in another assumption. Changes in one factor may cause changes in another, which could magnify or offset the sensitivities. 2006 fi nancial review american express company

AMERICAN EXPRESS COMPANY CONSOLIDATED RESULTS OF OPERATIONS

SUMMARY OF THE COMPANY’S FINANCIAL PERFORMANCE SELECTED STATISTICAL INFORMATION

Years Ended December 31, Years Ended December 31, (Millions, except per share (Billions, except percentages amounts and ratio data) 2006 2005 2004 and where indicated) 2006 2005 2004 Net revenues $27,136 $24,068 $21,897 Card billed business(a): Expenses $21,808 $19,820 $18,066 United States $ 406.8 $ 354.6 $304.8 Income from Outside the United States 154.7 129.8 111.3 continuing operations $3,729$ 3,221 $ 2,686 Total $ 561.5 $ 484.4 $416.1 Net income $3,707$ 3,734 $ 3,445 Total cards-in-force (millions)(a): Earnings per common United States 48.1 43.0 39.9 share from continuing Outside the United States 29.9 28.0 25.5 operations — diluted $ 3.01 $ 2.56 $ 2.09 Total 78.0 71.0 65.4 Earnings per common (a) share — diluted $2.99$ 2.97 $ 2.68 Basic cards-in-force (millions) : Return on average equity(a) 34.7% 25.4% 22.0% United States 37.1 32.8 30.3 Outside the United States 25.4 23.2 21.0 (a) Calculated based on $3.7 billion, $3.7 billion, and $3.4 billion of net income, and $10.7 billion, $14.7 billion, and $15.7 billion of Total 62.5 56.0 51.3 average shareholders’ equity for the trailing twelve months ending Average discount rate(b) 2.57% 2.58% 2.61% December 31, 2006, 2005, and 2004, respectively. Average basic cardmember spending (dollars)(a) $11,201 $10,445 $9,460 Average fee per card (dollars)(a)(c) $35$35$34

(a) Card billed business includes activities (including cash advances) [ 36 ] related to proprietary cards, cards issued under network partnership agreements, and certain insurance fees charged on proprietary cards. Cards-in-force include proprietary cards and cards issued under network partnership agreements. Average basic cardmember spending and average fee per card are computed from proprietary card activities only. (b) Computed as follows: Discount Revenue from all card spending (proprietary and Global Network Services) at merchants divided by all billed business (proprietary and Global Network Services) generating discount revenue at such merchants. Only merchants acquired by the Company are included in the computation. (c) Average fee per card is computed based on net card fees excluding the amortization of deferred direct acquisition costs. 2006 fi nancial review american express company

AMERICAN EXPRESS COMPANY The following discussions regarding Consolidated Results of Operations and Consolidated Liquidity and SELECTED STATISTICAL INFORMATION (CONTINUED) Capital Resources are presented on a basis consistent Years Ended December 31, with GAAP unless otherwise noted. (Billions, except percentages and where indicated) 2006 2005 2004 CONSOLIDATED RESULTS OF OPERATIONS FOR THE Worldwide cardmember THREE YEARS ENDED DECEMBER 31, 2006 receivables: The Company’s 2006 consolidated income from Total receivables $37.4$ 34.2 $ 31.1 90 days past due continuing operations rose 16 percent to $3.7 billion as a % of total 1.8% 1.6% 1.8% and diluted earnings per share (EPS) from continuing Loss reserves (millions): $981$ 942 $ 806 operations rose 18 percent to $3.01. Consolidated % of receivables 2.6% 2.8% 2.6% income from continuing operations for 2005 increased % of 90 days past due 147% 177% 146% 20 percent from 2004 and diluted EPS from continuing Net loss ratio as a % operations for 2005 increased 22 percent from 2004. of charge volume 0.24% 0.26% 0.26% The Company’s 2006 consolidated net income was Worldwide cardmember $3.7 billion, which was level with 2005, and diluted EPS lending — owned basis(a): increased 1 percent to $2.99. Consolidated net income Total loans $43.3$ 33.1 $ 26.9 for 2005 increased 8 percent from 2004. Net income for 30 days past due 2006 included a loss of $22 million from discontinued as a % of total 2.7% 2.5% 2.4% operations compared to $513 million and $830 million Loss reserves (millions): of income from discontinued operations in 2005 and Beginning balance $996$ 972 $ 998 2004, respectively. Provision 1,507 1,227 1,016 Net income and EPS in 2004 reflected the Net write offs (1,359) (1,155) (1,040) $71 million ($109 million pretax) or $0.06 per diluted Other 27 (48) (2) share impact of the Company’s adoption of the American Ending balance $1,171$ 996 $ 972 Institute of Certified Public Accountants Statement of [ 37 ] % of loans 2.7% 3.0% 3.6% Position 03-1, “Accounting and Reporting by Insurance % of past due 98% 122% 151% Enterprises for Certain Nontraditional Long-Duration Average loans $36.5$ 28.3 $ 25.9 Contracts and for Separate Accounts” (SOP 03-1). The Net write-off rate 3.7% 4.1% 4.0% adoption of SOP 03-1 related to discontinued operations. Net finance charge revenue/average loans 9.5% 9.1% 8.6% The Company’s revenues and expenses are both Worldwide cardmember affected by changes in the relative values of non-U.S. lending — managed basis(b): currencies to the U.S. dollar. The currency rate changes Total loans $63.5$ 54.3 $ 47.2 had minimal impact on both revenue and expense 30 days past due growth in each of 2006 and 2005. as a % of total 2.6% 2.4% 2.4% Results from continuing operations for 2006 included: Loss reserves (millions): • $177 million ($155 million after-tax) of gains related Beginning balance $1,469 $ 1,475 $ 1,541 to the sales of the Company’s card and merchant- Provision 1,991 2,097 1,931 related activities in Brazil, Malaysia, and Indonesia; Net write offs (1,933) (2,055) (1,957) Other 95 (48) (40) • $88 million ($40 million after-tax) of gains from Ending balance $1,622 $ 1,469 $ 1,475 the sale of an investment in Egyptian American % of loans 2.6% 2.7% 3.1% Bank (EAB); % of past due 97% 114% 129% • $68 million ($42 million after-tax) of gains related to Average loans $56.9$ 48.9 $ 45.4 a rebalancing program in the fourth quarter of 2006 Net write-off rate 3.4% 4.2% 4.3% to better align the maturity profile of the Travelers Net finance charge Cheque and Gift Card investment portfolio with its revenue/average loans 9.4% 9.3% 9.0% business liquidity needs; (a) “Owned,” a GAAP basis measurement, reflects only cardmember loans included in the Company’s Consolidated Balance Sheets. • $174 million ($113 million after-tax) of charges (b) Includes on-balance sheet cardmember loans and off-balance sheet associated with certain adjustments made to the securitized cardmember loans. The difference between the “owned Membership Rewards reserve models in the U.S. basis” (GAAP) information and “managed basis” information is attributable to the effects of securitization activities. See the U.S. and outside the U.S.; Card Services segment for additional information on managed basis presentation. * * * 2006 fi nancial review american express company

• $154 million ($100 million after-tax) of reengineering Net Revenues costs; and Consolidated net revenues for 2006 and 2005 were $27.1 • a $72 million ($47 million after-tax) reduction in billion and $24.1 billion, respectively, up 13 percent cardmember lending finance charge revenues, net and 10 percent from 2005 and 2004, respectively. Net of interest, and securitization income, net related revenues increased primarily due to higher discount to higher than anticipated cardmember completion revenue, increased cardmember lending finance charge of consumer debt repayment programs and certain revenue, net of interest, greater securitization income, net, associated payment waivers. and also, higher other revenues in 2006. Consolidated net revenues in 2006 included a $72 million reduction In addition, 2006 results included a favorable impact in cardmember lending finance charge revenue, net of from lower early credit write-offs, primarily related to interest and securitization income, net related to higher bankruptcy legislation enacted in October 2005 and than anticipated cardmember completion of consumer lower than expected costs associated with Hurricane debt repayment programs and certain associated Katrina that were provided for in 2005, partially offset payment waivers as well as a reclassification of certain by a higher provision for losses in due primarily card acquisition-related costs, beginning prospectively to the impact of industry-wide credit issues. July 1, 2006, from other expenses to a reduction in net Results from continuing operations for 2005 included: card fees. • tax benefits of $239 million resulting from the Discount revenue for 2006 rose 13 percent as resolution of previous years’ tax items and the compared to 2005 to $13.0 billion as a result of a 16 finalization of state tax returns; percent increase in worldwide billed business, partially offset by a lower average discount rate, relatively faster • a $113 million ($73 million after-tax) benefit from the recovery of September 11, 2001-related growth in billed business related to Global Network insurance claims; Services (GNS), and higher cash-back rewards costs. Selective repricing initiatives, continued changes in the • $286 million ($186 million after-tax) of mix of business and volume-related pricing discounts [ 38 ] reengineering costs; and will likely continue to result in some erosion of the • a $49 million ($32 million after-tax) provision average discount rate over time. The 16 percent increase to reflect the estimated costs related to in worldwide billed business in 2006 reflected increases Hurricane Katrina. in average spending per proprietary basic card, growth in basic cards-in-force, and a 48 percent increase in billed In addition, 2005 results included an increase in the business related to GNS from 2005. provision for losses related to increased bankruptcy U.S. billed business and billed business outside the filings resulting from the change in bankruptcy U.S. were up 15 percent and 19 percent, respectively, legislation. in 2006, due to increases in average spending per Results from continuing operations for 2004 included: proprietary basic card and growth in basic cards-in- • a $115 million ($75 million after-tax) charge force. The growth in the billed business both within reflecting a reconciliation of securitization-related the U.S. and outside the U.S. reflected increases within cardmember loans for balances accumulated over the the Company’s consumer card business, small business prior five-year period as a result of a computational spending and Corporate Services volumes. error; • $99 million ($64 million after-tax) of restructuring charges; • a $117 million ($76 million after-tax) net gain on the sale of the equipment leasing product line; and • a $60 million ($39 million after-tax) benefit for a reduction in merchant-related reserves. 2006 fi nancial review american express company

The table below summarizes selected statistics billed business, average spending per proprietary basic for which increases in 2006 have resulted in discount card and growth in cards-in-force, offset in part by a revenue growth: lower average discount rate. Cardmember lending finance charge revenue, net Percentage Increase of interest, rose 34 percent to $3.5 billion in 2006, Assuming resulting from a 36 percent increase in lending finance No Changes in Foreign charge revenue which was partially offset by a 41 percent Percentage Exchange increase in lending finance charge interest as compared Increase Rates to 2005. The net increase is attributable to a 29 percent Worldwide(a) growth in average worldwide cardmember lending Billed business 16% 15% balances, and a higher portfolio yield, partially offset Average spending per proprietary basic card 7 7 by the impact of higher than anticipated cardmember Basic cards-in-force 12 completion of consumer debt repayment programs and U.S.(a) certain associated payment waivers and higher funding Billed business 15 costs. During 2005, cardmember lending finance charge revenue, net of interest, increased 16 percent to $2.6 Average spending per proprietary basic card 6 billion, reflecting growth in average worldwide lending Basic cards-in-force 13 balances and a higher portfolio yield. Proprietary consumer card billed Securitization income, net increased 18 percent to business(b) 13 $1.5 billion in 2006 as a higher trust portfolio yield and Proprietary small business billed a decrease in trust portfolio write-offs were partially business(b) 16 offset by greater interest expense due to a higher Proprietary Corporate Services billed coupon rate paid to certificate holders, a lower average business(c) 14 securitization balance, and the impact of higher than Outside the U.S.(a) anticipated cardmember completion of consumer debt [ 39 ] Billed business 19 17 repayment programs and certain associated payment Average spending per proprietary waivers. Securitization income, net increased 11 percent basic card 11 9 to $1.3 billion in 2005 up from $1.1 billion in 2004 on Basic cards-in-force 9 a greater average balance of securitized loans, a higher Proprietary consumer and small trust portfolio yield and a decrease in the trust portfolio (c) business billed business 13 11 write-offs, partially offset by greater interest expense due Proprietary Corporate Services billed to a higher coupon rate paid to certificate holders, and an business(c) 19 17 increase in the payment speed of trust assets. (a) Captions not designated as “proprietary” include both proprietary Other revenues increased 21 percent to $1.8 billion and GNS data. in 2006 primarily due to $68 million of gains related to (b) Included in the U.S. Card Services segment. the rebalancing of the Company’s Travelers Cheque and (c) Included in the International Card & Global Commercial Services segment. Gift Card investment portfolio as discussed previously, fees associated with transition services agreements with Total billed business outside the U.S. reflected double- Ameriprise as well as higher network partner-related digit proprietary growth in all regions except for fees. Other revenues of $1.5 billion in 2005 were Latin America. Excluding the impact of the sale in consistent with 2004. Brazil, described in the Acquisition and Divestitures section, Latin America also exhibited double-digit Expenses proprietary growth. The increase in overall cards-in-force within both Consolidated expenses for 2006 were $21.8 billion, up proprietary and Global Network Services reflected 10 percent from $19.8 billion in 2005. The increase continued robust increases in the number of new cards in 2006 was primarily driven by increased marketing, added to the Company’s franchise as well as continued promotion, rewards and cardmember services expenses, solid average customer retention levels in 2006. In greater professional services expenses, increased interest the U.S. and non-U.S. businesses, 5.1 million and 1.9 costs, higher provisions for losses and benefits, and million cards were added in 2006, respectively. During greater human resources expenses, partially offset by 2005, discount revenue rose 13 percent to $11.5 billion lower other expenses. Consolidated expenses in 2006 compared to 2004 as a result of increases in worldwide and 2005 also included $154 million and $286 million, 2006 fi nancial review american express company

respectively, of reengineering costs. The charges reflect by the Company’s ongoing global brand advertising expenses in connection with several initiatives relating campaign and continued focus on business-building principally to the restructuring of the Company’s initiatives. The growth in rewards costs is attributed business travel, operations, finance, and technology to volume growth, a higher redemption rate and strong areas. Reengineering costs in 2006 included $111 million cardmember loyalty program participation. of severance, of which $89 million was restructuring- Human resources expenses increased 5 percent to related, and is included within human resources, and $5.1 billion for 2006 due to merit increases and larger $43 million of non-severance exit costs, of which $11 benefit-related costs, partially offset by a relatively million was restructuring-related, and is included within flat level of employees and lower severance-related other expenses. costs compared to 2005. Human resources expenses Reengineering costs for 2005 included $203 million in 2005 increased 6 percent to $4.8 billion compared of severance, of which $164 million was restructuring- to 2004 due to severance-related costs resulting from related, and is included within human resources, and the restructuring initiatives, higher management $83 million of non-severance exit costs, of which $29 incentives, including an additional year of stock-based million was restructuring-related, and is included within compensation expenses, merit increases, and increased other expenses. Consolidated expenses for 2005 were employee benefit expenses, which were partially offset $19.8 billion, up 10 percent from $18.1 billion in 2004. by reengineering benefits. The increase in 2005 was primarily driven by higher Total provisions for losses and benefits in 2006 marketing, promotion, rewards and cardmember services increased 11 percent over last year to $3.1 billion as the expenses, greater provisions for losses and benefits, and lending and investment certificate and other provisions increased expenses for human resources, partially offset growth of 20 percent and 37 percent, respectively, was by lower other expenses. partially offset by a 10 percent decline in the charge card Marketing, promotion, rewards and cardmember provision. The increase in the lending provision was services expenses increased 12 percent to $6.5 billion driven by increased loan volumes globally and higher for 2006, reflecting greater rewards costs, and higher loss rates outside the U.S., primarily in Taiwan, partially [ 40 ] marketing and promotion expenses. The higher offset by the favorable impact of lower bankruptcy-related rewards costs continued to reflect volume growth, a charge offs and strong credit quality in the U.S., and higher estimated ultimate redemption rate, and strong lower than expected costs related to Hurricane Katrina cardmember loyalty program participation. Rewards losses that were provided for in 2005. The investment costs in 2006 included a $112 million charge related to certificate and other provision rose due to higher interest certain adjustments made to the Membership Rewards rates on larger investment certificate balances and reserve model in the U.S. and a $62 million charge increased merchant-related reserves. Compared to 2005, related to certain adjustments made to the Membership the charge provision reflected the lower loss rate, lower Rewards reserve model outside the U.S. These than expected costs for Hurricane Katrina losses that adjustments to the Membership Rewards reserve models were provided for last year, and improved results from related to a higher ultimate redemption rate assumption collection activities. to reflect redemption statistics for cardmembers who left Total provisions for losses and benefits in 2005 the program over the past five years, as management increased 22 percent over 2004 to $2.8 billion due to believes this is a better indicator of future redemption increases in charge card, lending and other provisions. behavior than the redemption statistics for cardmembers These increases were primarily due to increased charge who left the program since inception used previously. card and lending volumes and higher provision rates, Marketing expenses continued to reflect relatively high which were mostly due to substantially higher write- levels of spending related to various business-building offs within the lending business due to the change in initiatives, but lower costs versus last year related to the bankruptcy legislation during the fourth quarter of the Company’s ongoing global “MyLife, MyCard(SM)” 2005, as well as a provision to reflect the estimated costs advertising campaign, which was in a more active phase related to Hurricane Katrina. during 2005. Professional services expenses in 2006 and 2005 Marketing, promotion, rewards and cardmember increased 17 percent and 8 percent to $2.7 billion and services expenses increased 18 percent to $5.8 billion $2.3 billion, respectively, due to higher technology in 2005 reflecting higher marketing and promotion service fees, greater business and service-related volumes, expenses and greater rewards costs. The increase in and in 2006, increased credit and collection costs. marketing and promotion expenses was primarily driven 2006 fi nancial review american express company

Interest expense in 2006 and 2005 increased 34 occurred, whereas 2004 included a full year of results percent and 13 percent to $1.2 billion and $920 million, from these discontinued operations. The discontinued respectively, reflecting a higher effective cost of funds operations generated revenues of $9 million, $5.8 billion, and increased debt funding levels in support of growth and $7.2 billion for 2006, 2005, and 2004, respectively. in receivables. Going forward, the Company recognizes the need Other expenses in 2006 decreased 1 percent to $1.3 to respond to increased competitive pressures within billion compared to 2005 due to the reclassification the marketplace and challenges within the economic of certain card acquisition-related costs, beginning environment. In particular, as compared to 2005, the prospectively July 1, 2006, from other expenses to a Company economically hedged a smaller percentage reduction in net card fees, and the 2006 gains on the of its expected interest rate exposure in 2006, and is sales of the Company’s card and merchant-related substantially less economically hedged for 2007 and activities in Brazil, Malaysia, and Indonesia as well as beyond. This decrease along with higher interest the investment in EAB. The decrease was partially rates and higher volume-related borrowings resulted offset by the September 11, 2001-related insurance in higher funding costs in 2006 as compared with settlement in 2005 and higher volume and technology- 2005. The Company expects higher funding costs related costs in 2006. to continue in 2007, due to an expected increase in The effective tax rate was 30 percent in 2006 higher-cost floating rate borrowings relative to fixed- compared to 24 percent in 2005 and 30 percent in rate funding that matured in 2006. In addition, the 2004. The effective tax rate in 2006 as compared to Company expects that results in 2007 will not reflect 2005 reflected higher tax expense related to uncertainty the same benefit to its write-off rate that resulted from regarding the Company’s ability to obtain tax benefits the change in U.S. bankruptcy laws in 2005, and that for certain expenses attributable to foreign subsidiaries, favorably impacted results in 2006. The Company is a relatively high effective tax rate due to the impact of focused on meeting these and other challenges in 2007 foreign exchange translation on the gain on the sale of and beyond by investing in growth opportunities, by the Company’s investment in EAB, and a relatively low focusing on reengineering activities to control operating [ 41 ] effective tax rate benefit on the credit losses in Taiwan. expense growth, by efficiently allocating capital, and These items were offset by the favorable impacts of a by controlling discretionary expenses, including lower relatively low effective rate on the sale of the Company’s levels of marketing and promotion expenses. card and merchant-related activities in Brazil resulting principally from the difference between the applicable CONSOLIDATED CAPITAL RESOURCES Brazil tax rate and the higher U.S. statutory rate, a net AND LIQUIDITY interest receivable from the IRS, finalization of the CAPITAL STRATEGY 2005 U.S. federal tax return, and an adjustment of 2006 The Company generates equity capital primarily through estimated state taxes. The effective tax rate was lower net income to fund current needs and future business in 2005 as compared to 2004 as the 2005 rate reflected growth and to maintain a targeted debt rating. Equity benefits of $239 million resulting from the resolution capital generated in excess of these needs is returned to of previous years’ tax items and the finalization of state shareholders through dividends and the share repurchase tax returns. program. The maintenance of a solid equity capital base (Loss) income from discontinued operations, net of provides the Company with a strong and stable debt tax, was $(22) million, $513 million, and $830 million rating and uninterrupted access to diversified sources in 2006, 2005, and 2004, respectively. Included in of financing to fund asset growth. In addition, the 2006 is a $22 million after-tax loss related to the sale Company has a contingency funding plan to help ensure of the Company’s international banking activities in adequate sources of financing in difficult economic or Brazil. Income from discontinued operations, net of market environments and, in certain circumstances, for tax, decreased 38 percent in 2005 from 2004 due to other adverse events affecting the Company. spin-off related costs of $127 million after-tax, partially The Company believes allocating capital to growing offset by a $63 million net after-tax gain on certain businesses with a return on risk-adjusted equity in excess dispositions, primarily TBS. Additionally, 2005 results of its cost of capital will generate shareholder value. The from discontinued operations are included through Company retains sufficient earnings and other capital September 30, 2005, the date on which the spin-off of generated to satisfy growth objectives and, to the extent Ameriprise and certain dispositions (primarily TBS) capital exceeds business needs, returns excess capital to shareholders. The Company was able during 2006 to 2006 fi nancial review american express company

return to shareholders a high percentage of its earnings Approximately 69 percent of capital generated and capital generated due in part to its balance sheet has been returned to shareholders since inception of management activities that seek to optimize the level the share repurchase program in 1994. In May 2006, of shareholders’ equity required to support its growth. the Company’s Board of Directors authorized the Assuming the Company achieves its financial objectives repurchase of an additional 200 million shares of the of 12 to 15 percent EPS growth, 33 to 36 percent ROE Company’s common stock. During 2006, the Company and at least 8 percent revenue growth, on average and over purchased 75 million common shares at an average price time, it will seek to return to shareholders an average of of $54.50. The Company repurchased a higher level of 65 percent of capital generated, subject to business mix, shares in 2006 after activity was reduced in 2005 due acquisitions and rating agency requirements. to the capital implications of the September 30, 2005 As described above, during 2006 the Company spin-off of Ameriprise. At December 31, 2006, there raised its ROE target from a range of 28 to 30 percent to were approximately 165 million shares remaining under a range of 33 to 36 percent. Important factors relating to authorizations to repurchase shares approved by the ROE include the Company’s margins, the amount and Company’s Board of Directors. type of receivables and other assets needed to generate revenue, the level of capital required to support its assets, CASH FLOWS and the mix between shareholders’ equity and other Cash Flows from Operating Activities forms of financial capital that it holds as a result of its For the year ended December 31, 2006, net cash provided financing activities. In addition, in keeping with the by operating activities was $9.0 billion. In 2005 and Company’s objectives regarding the return of excess 2006, net cash provided by operating activities exceeded capital to shareholders, the Board of Directors of the net income, primarily due to provisions for losses and Company approved a 25 percent increase in the quarterly benefits, which are expenses in the Consolidated dividend on the Company’s common stock from $0.12 to Statements of Income but do not require cash at the time $0.15 per share for the dividend paid to shareholders on of provision. Similarly, depreciation and amortization August 10, 2006 and future dividends. During 2006, [ 42 ] represent non-cash expenses. In addition, net cash was through dividends and share repurchases, the Company provided by fluctuations in other operating assets and returned approximately 93 percent of total capital liabilities (including the Membership Rewards liability). generated to shareholders in the form of $692 million in These accounts vary significantly in the normal dividends and $4.1 billion of share repurchases. course of business due to the amount and timing of The Company maintains flexibility to shift capital various payments. among business units as appropriate. For example, the Net cash provided by operating activities was Company may infuse additional capital into subsidiaries lower in 2005 than 2004 due to a decrease in net to maintain capital at targeted levels, considering debt cash provided by operating activities attributable to ratings and regulatory requirements. These infused discontinued operations. amounts can affect both the capital and liquidity levels for Management believes cash flows from operations, American Express’ Parent Company (Parent Company). available cash balances and short-term borrowings The Company maintains discretion to manage these will be sufficient to fund the Company’s operating effects, by issuing public debt and reducing projected liquidity needs. common share buybacks. Additionally, the Company may transfer short-term funds within the Company to Cash Flows from Investing Activities meet liquidity needs, subject to and in compliance with The Company’s investing activities primarily include various contractual and regulatory constraints. funding cardmember loans and receivables and the

SHARE REPURCHASES Company’s available-for-sale investment portfolio. For the year ended December 31, 2006, net cash of The Company has a share repurchase program to return $15.2 billion was used in investing activities primarily due equity capital in excess of business needs to shareholders. to net increases in cardmember receivables and loans. These share repurchases both offset the issuance of new For the year ended December 31, 2005, net cash used shares as part of employee compensation plans and in investing activities increased from 2004. The increase reduce shares outstanding. The Company repurchases reflects net increases in cardmember receivables and loans its common shares primarily by open market purchases. and cash retained by Ameriprise after the spin-off. 2006 fi nancial review american express company

Cash Flows from Financing Activities FUNDING STRATEGY The Company’s financing activities primarily include The Company’s funding needs are met primarily through issuing debt and taking customer deposits in addition the following sources: to the sale of investment certificates. The Company also • Commercial paper, regularly repurchases its common shares. Bank notes, customers’ deposits, institutional CDs In 2006, net cash provided by financing activities • and Fed Funds, of $6.8 billion was primarily due to a net increase in debt partially offset by an increase in share • Medium-term notes and senior unsecured debentures, repurchase activity. • Asset securitizations, and In 2005, financing activities provided net cash Long-term committed bank borrowing facilities in greater than in 2004 primarily due to a net increase in • selected non-U.S. markets. customers’ deposits. General corporate purpose funding is primarily FINANCING ACTIVITIES through the Parent Company and American Express The Company is committed to maintaining cost- Travel Related Services Company, Inc. (TRS). The effective, well-diversified funding programs to support Company funds its cardmember receivables and loans current and future asset growth in its global businesses. primarily through five entities. American Express The Company’s funding plan is structured to meet Credit Corporation (Credco) finances the vast majority expected and changing business needs to fund asset of worldwide cardmember receivables, while American balances efficiently and cost-effectively. The Company Express Centurion Bank (Centurion Bank) and relies on diverse sources, to help ensure the availability of American Express Bank, FSB (FSB) principally fund financing in unexpected periods of stress and to manage cardmember loans originated from the Company’s U.S. interest rate exposures. In addition to the funding plan lending activities. Two trusts are used by the Company described below, the Company has a contingent funding in connection with the securitization and sale of U.S. strategy to allow for the continued funding of business receivables and loans generated in the ordinary course of [ 43 ] operations through difficult economic, financial market the Company’s card businesses. In 2006 and 2005, the and business conditions when access to regular funding Company had uninterrupted access to the money and sources could become diminished or interrupted. capital markets to fund its business operations. The Company’s card businesses are the primary The Company’s debt offerings are placed either asset-generating businesses, with significant assets in directly to investors, as in the case of its commercial both domestic and international cardmember receivable paper program through Credco, or through securities and lending activities. Accordingly, the Company’s most brokers or underwriters. In certain international markets, significant borrowing and liquidity needs are associated bank borrowings are used to partially fund cardmember with the card businesses. The Company generally pays receivables and loans. merchants for card transactions prior to reimbursement by Diversity of funding sources by type of debt cardmembers. The Company funds merchant payments instrument, by maturity and by investor base provides during the period cardmember loans and receivables are additional insulation from unforeseen events in the outstanding. The Company also has borrowing needs short-term debt market. The Company had the following associated with general corporate purposes. consolidated debt, on both a GAAP and managed basis, The following discussion includes information on and customer deposits outstanding at December 31: both a GAAP and managed basis. The managed basis presentation includes debt issued in connection with the (Billions) 2006 2005 Company’s lending securitization activities, which are Short-term debt $ 15.2 $ 15.6 off-balance sheet. For a discussion of managed basis and Long-term debt 42.7 30.8 management’s rationale for such presentation, refer to Total debt (GAAP basis) 57.9 46.4 the U.S. Card Services discussion below. Off-balance sheet securitizations 20.2 21.2 Total debt (managed basis) 78.1 67.6 Customers’ deposits 24.7 24.6 Total debt (managed) and customers’ deposits $102.8 $ 92.2 2006 fi nancial review american express company

Short-term debt is defined as any debt with an original greater than 12 months but less than 36 months. Long- maturity of 12 months or less. Credco’s commercial term debt is generally defined as any debt with an paper is a widely recognized name among short-term original maturity greater than 36 months. investors and is a principal source of short-term debt for In 2006, medium- and long-term debt with maturities the Company. At December 31, 2006, Credco had $5.8 primarily ranging from 2 to 10 years was issued. The billion of commercial paper outstanding. The outstanding Company’s 2006 term offerings, which include those amount decreased $1.9 billion or 25 percent from a year made by the Parent Company, TRS, Credco, Centurion ago. Average commercial paper outstanding was $7.8 Bank, FSB, and the American Express Credit Account billion and $8.1 billion in 2006 and 2005, respectively. Master Trust (the Lending Trust) are presented in the Credco currently manages the level of short-term debt following table on both a GAAP and managed basis: outstanding such that its back-up liquidity, including available bank credit facilities and term liquidity portfolio (Billions) Amount investment securities, is not less than 100 percent of net American Express Company (Parent Company only)(a): short-term debt. Net short-term debt, which consists Subordinated Debentures $ 0.8 of commercial paper and certain other short-term Fixed Rate Senior Notes 1.0 borrowings less cash and cash equivalents, was $5.1 American Express Travel Related Services billion at December 31, 2006. Based on the maximum Company, Inc.: available borrowings under bank credit facilities and Fixed and Floating Rate Medium-Term Notes 1.5 term liquidity portfolio investment securities, Credco’s American Express Credit Corporation: total back-up liquidity coverage of net short-term debt Floating Rate Senior Notes 6.5 was 212 percent at December 31, 2006. Fixed and Floating Rate Medium-Term Notes 1.9 Centurion Bank and FSB raise short-term debt American Express Centurion Bank: through various instruments. Bank notes issued and Fed Floating Rate Medium-Term Notes 3.7 Funds purchased by Centurion Bank and FSB totaled American Express Bank, FSB: approximately $7.8 billion as of December 31, 2006. [ 44 ] Floating Rate Medium-Term Notes 3.2 Centurion Bank and FSB also raise customer deposits through the issuance of certificates of deposit to retail GAAP Basis 18.6 and institutional customers. As of December 31, 2006, American Express Credit Account Master Trust: Centurion Bank and FSB held $11.6 billion in customer Trust Investor Certificates (off-balance sheet) 3.5 deposits. Centurion Bank and FSB each maintain $400 Managed Basis $22.1 million of committed bank credit lines as a backup to (a) The table above excludes the remarketing of the Convertible short-term funding programs. Long-term funding needs Senior Debentures to Senior Notes described below. are met principally through the sale of cardmember loans The Company continues to issue long-term debt with in securitization transactions. a wide range of maturities to reduce and spread out the The Asset/Liability Committees of Centurion Bank refinancing requirement in future periods. The Company and FSB provide management oversight with respect expects that its planned funding during 2007 will be to formulating and ratifying funding strategy and to met through a combination of sources similar to those ensuring that all funding policies and requirements on which it currently relies. However, the Company are met. continues to assess its needs and investor demand and The Company had short-term debt as a percentage may change its funding mix. The Company’s funding of total debt at December 31 as follows: plan is subject to various risks and uncertainties, such as disruption of financial markets, market capacity and 2006 2005 demand for securities offered by the Company, regulatory Short-term debt percentage of total debt (GAAP basis) 26.2% 33.7% changes, ability to sell receivables and the performance of receivables previously sold in securitization transactions. The percentage of short-term debt at December 31, 2006 Many of these risks and uncertainties are beyond the is lower than at December 31, 2005 in part due to the Company’s control. temporary decline in the amount of commercial paper At December 31, 2006, the Parent Company had outstanding at Credco. an unspecified amount of debt or equity securities and Medium- and long-term debt is raised through Credco had an unspecified amount of debt available for the offering of debt securities in the United States and issuance under shelf registrations filed with the Securities international capital markets. Medium-term debt is and Exchange Commission (SEC). In addition, TRS, generally defined as any debt with an original maturity 2006 fi nancial review american express company

Centurion Bank, Credco, American Express Overseas The Parent Company also issued $400 million of 5.25 Credit Corporation Limited, a wholly-owned subsidiary percent and $600 million of 5.50 percent fixed-rate of Credco, and American Express Bank Ltd. have Senior Global Notes due 2011 and 2016, respectively. established a program for the issuance outside the As of December 31, 2005, the Parent Company United States, of debt instruments to be listed on the had $2 billion principal outstanding of 1.85 percent Luxembourg Stock Exchange. The maximum aggregate Convertible Senior Debentures due 2033 (the Senior principal amount of debt instruments outstanding at any Debentures), which were unsecured obligations of the one time under the program cannot exceed $10 billion. Company. On December 1, 20 06, the Senior Debent ures The Company’s funding strategy is designed to were remarketed into unsecured, floating rate Senior maintain high and stable debt ratings from the major Notes due 2033 (the Senior Notes). The Senior Notes credit rating agencies, Moody’s, Standard & Poor’s may be put to the Company at par on June 5, 2008 and and Fitch Ratings. Maintenance of high and stable accrue interest at an annual rate of three-month LIBOR debt ratings is critical to ensuring the Company has plus 11.453 basis points. Contingent interest payments continuous access to the capital and credit markets. It up to 4 percent are required if the Senior Notes are not also enables the Company to reduce its overall borrowing rated at certain levels by the rating agencies. costs. At December 31, 2006, the Parent Company debt The Parent Company is authorized to issue ratings were as follows: commercial paper. This program is supported by a $1.2 billion multi-purpose committed bank credit facility Standard Fitch that expires in 2010. There was no Parent Company Moody’s & Poor’s Ratings commercial paper outstanding during 2006 and 2005, Short-term P-1 A-1 F1 and no borrowings have been made under its bank Senior unsecured A1 A+ A+ credit facility. The Company actively manages the risk of liquidity and cost of funds resulting from the Company’s Asset Securitizations financing activities. Management believes a decline in The Company periodically securitizes cardmember [ 45 ] the Company’s long-term credit rating by two levels receivables and loans arising from its card business. could result in the Company having to significantly The securitization market provides the Company with reduce its commercial paper and other short-term cost-effective funding. Securitization of cardmember borrowings. Remaining borrowing requirements would receivables and loans is accomplished through the transfer be addressed through other means such as the issuance of those assets to a trust, which in turn issues certificates of long-term debt, additional securitizations, increased or notes (securities) to third-party investors collateralized deposit taking, and the sale of investment securities or by the transferred assets. The proceeds from issuance are drawing on existing credit lines. This would result in distributed to the Company, through its wholly-owned higher interest expense on the Company’s commercial subsidiaries, as consideration for the transferred assets. paper and other debt, as well as higher fees related to Securitization transactions are accounted for as either a unused lines of credit. The Company believes a two level sale or secured borrowing, based upon the structure of downgrade is highly unlikely due to its capital position the transaction. and growth prospects. Securitization of cardmember receivables generated under designated consumer charge card and small Parent Company Funding business charge card accounts is accomplished through Total Parent Company long-term debt outstanding was the transfer of cardmember receivables to the American $6.0 billion and $5.2 billion at December 31, 2006 and Express Issuance Trust (Charge Trust). Securitizations 2005, respectively. During 2006, the Parent Company of these receivables are accounted for as secured issued $750 million of fixed-rate Subordinated borrowings because the Charge Trust is not a qualifying Debentures due 2036. These Subordinated Debentures special purpose entity (QSPE). Accordingly, the related are automatically extendable until 2066 unless certain assets being securitized are not accounted for as sold events occur prior to that date. The Subordinated and continue to be reported as owned assets on the Debentures will accrue interest at an annual rate of 6.80 Company’s Consolidated Balance Sheets. The related percent until September 1, 2016 and at an annual rate securities issued to third-party investors are reported of three-month LIBOR plus 2.23 percent thereafter. as long-term debt on the Company’s Consolidated Balance Sheets. As of December 31, 2006 and 2005, the 2006 fi nancial review american express company

Charge Trust held total assets of $9.6 billion and $9.9 billion and $28.9 billion, respectively, of which $20.2 billion, respectively, with $1.2 billion of long-term debt billion and $21.2 billion, respectively, had been sold outstanding at December 31, 2006 and 2005. and $14.4 billion and $7.7 billion, respectively, had Securitization of the Company’s cardmember loans been classified as seller’s interest. The fair value of the generated under designated consumer lending accounts interest-only strip and other retained interests was $266 is accomplished through the transfer of cardmember million and $279 million at December 31, 2006 and loans to a QSPE, the American Express Credit Account 2005, respectively. Master Trust (Lending Trust). In a securitization Under the respective terms of the Lending Trust structure like the Lending Trust (a revolving master and the Charge Trust agreements, the occurrence of trust), credit card accounts are selected and the rights to certain events could result in either trust being required t he cu r rent ca rd member loa ns, as wel l as f ut u re cash f lows to paydown the investor certificates and notes before related to the corresponding accounts, are transferred to their expected payment dates over an early amortization the trust for the life of the accounts. In consideration period. An example of such an event is, for either trust, for the transfer of these rights, the Company, through the failure of the securitized assets to generate specified its wholly-owned subsidiaries, receives an undivided, yields over a defined period of time. pro rata interest in the trust referred to as the “seller’s No such events have occurred during 2006 and 2005, interest”, which is reflected on balance sheet as a and the Company does not expect an early amortization component of cardmember loans. The seller’s interest trigger event to occur prospectively. In the event of a is required to be maintained at a minimum level of 7 paydown of the Lending Trust, $20.2 billion of assets percent of the outstanding securities in the Lending would revert to the balance sheet and an alternate source Trust. As of December 31, 2006, the amount of seller’s of funding of a commensurate amount would have to be interest was approximately 67 percent of outstanding obtained. Had a total paydown of the Lending Trust securities, above the minimum requirement. When the hypothetically occurred at a single point in time at Lending Trust issues a security to a third party, a new December 31, 2006, the cumulative negative effect on investor interest is created. The Company removes the results of operations would have been approximately $639 [ 46 ] corresponding cardmember loans from its Consolidated million pretax to re-establish reserves and to derecognize Balance Sheets, recognizes a gain on sale and records an the retained interests related to these securitizations that interest-only strip. From time to time, the Company would have resulted when the securitized loans reverted may record other retained interests as well. The total back onto the balance sheet. investors’ interest outstanding will change through new Virtually no financial statement impact would occur issuances or maturities. The seller’s interest will change from a paydown of the Charge Trust, but an alternate as a result of new trust issuances or maturities as well source of funding for the $1.2 billion of securities as new account additions, new charges on securitized outstanding at December 31, 2006 would have to accounts, and collections. As seller’s interest changes be obtained. each period, the related allowance for loss will change as With respect to both the Lending Trust and the well. When a security matures, the trust uses a portion Charge Trust, a decline in the actual or implied short- of the collections to repay the security, and as a result term credit rating of TRS below A-1/P-1 will trigger a the investors’ interest decreases. In the monthly period requirement that TRS, as servicer, transfer collections which contains a maturity, new charges on securitized on the securitized assets to investors on a daily, rather accounts have historically been greater than the portion than a monthly, basis or make alternative arrangements of the collections required to repay the maturing with the rating agencies to allow TRS to continue to security, and therefore, seller’s interest has increased transfer collections on a monthly basis. Such alternative in an amount greater than or equal to the decrease in arrangements include obtaining appropriate guarantees investors’ interest. for the performance of the payment and deposit The Company’s continued involvement with the obligations of TRS, as servicer. securitized cardmember loans includes the process of No officer, director, or employee holds any equity managing and servicing the securitized loans through interest in the trusts or receives any direct or indirect its subsidiary, TRS, for which it earns a fee. Any billed compensation from the trusts. The trusts in the finance charges related to the transferred cardmember Company’s securitization programs do not own stock loans are reported as other receivables on the Company’s of the Company or the stock of any affiliate. Investors Consolidated Balance Sheets. As of December 31, 2006 in the securities issued by the trusts have no recourse and 2005, the Lending Trust held total assets of $34.6 2006 fi nancial review american express company

against the Company if cash flows generated from the Liquidity Investment Portfolio securitized assets are inadequate to service the obligations During the normal course of business, funding activities of the trusts. may raise more proceeds than are necessary for immediate funding needs. These amounts are invested principally Liquidity in short-term overnight, highly liquid instruments. The Company balances the trade-offs between having In addition, the Company has developed a liquidity too much liquidity, which can be costly and limit portfolio in which proceeds raised from such borrowings financial flexibility, with having inadequate liquidity, are invested in longer term, highly liquid instruments, which may result in financial distress during a liquidity such as U.S. Treasury securities and federal agency debt. event. The Company considers various factors in At December 31, 2006, the Company held $5.1 billion of determining its liquidity needs, such as economic and such securities under this program. In addition, Credco financial market conditions, seasonality in business entered into securities lending agreements in June 2006 operations, growth in business segments, cost and with other financial institutions to enhance investment availability of alternative liquidity sources, and credit income. At December 31, 2006, the liquidity investment rating agency considerations. portfolio included approximately $716 million of The Company has developed a contingent funding investment securities loaned under these agreements. plan that enables it to meet its daily funding obligations The invested amounts of the liquidity portfolio when access to unsecured funds in the debt capital provide back-up liquidity, primarily for the commercial markets is impaired or unavailable. This plan is designed paper program at Credco, and also flexibility for other to ensure that the Company and all of its main operating short-term funding programs at Centurion Bank and entities could continuously maintain normal business FSB. Instruments held within this portfolio will be of operations for a twelve-month period in which its the highest credit quality and most liquid of investment access to unsecured funds is interrupted. In addition, instruments available. The Company can easily sell these the Company maintains substantial flexibility to securities or enter into sale/repurchase agreements to reduce its operating cash uses, such as through its share immediately raise cash proceeds to meet liquidity needs. [ 47 ] repurchase program, and the delay or deferral of certain operating expenses. Committed Bank Credit Facilities The funding sources that would be relied upon The Company maintained committed bank credit depend on the exact nature of such a hypothetical facilities with 38 financial institutions totaling $11.6 liquidity crisis; nonetheless, the Company’s liquidity billion, of which $2.7 billion was outstanding. During sources are designed with the goal of ensuring there 2006, the Company renewed and extended a total of is sufficient cash on hand to fund business operations $3.3 billion and increased approximately $785 million over a twelve-month period regardless of whether the of these facilities. Credco has the right to borrow a liquidity crisis was caused by an external, industry, or maximum amount of $10.8 billion (including amounts Company specific event. The contingent funding plan outstanding) under these facilities, with a commensurate also addresses operating flexibilities in quickly making maximum $1.2 billion reduction in the amount available these funding sources available to meet all financial to the Parent Company. The Company’s facilities expire obligations. The simulated liquidity crisis is defined as as follows (billions): 2009, $3.3; 2010, $5.0; and 2011, a sudden and unexpected event that temporarily impairs $3.3. access to or makes unavailable funding in the unsecured The availability of the credit lines is subject to debt markets. the Company’s compliance with certain financial The contingent funding plan includes access to covenants, including the maintenance by the Company diverse sources of alternative funding. Such sources of consolidated tangible net worth of at least $4.1 include but are not limited to its liquidity investment billion, the maintenance by Credco of a 1.25 ratio portfolio, committed bank lines, intercompany of combined earnings and fixed charges to fixed borrowings, sale of consumer, commercial card, and charges, and the compliance by Centurion Bank small business loans and cardmember receivables through and FSB with applicable regulatory capital adequacy its existing securitization programs and sale of other guidelines. At December 31, 2006, the Company’s eligible receivables. The Company estimates that, under consolidated tangible net worth was approximately a worst case liquidity crisis scenario, it has identified up $9.0 billion, Credco’s ratio of combined earnings and to $37.5 billion in alternate funding sources available to fixed charges to fixed charges was 1.44 and Centurion cover cash needs over the first 60 days after a liquidity Bank and FSB each exceeded their regulatory capital crisis has occurred. adequacy guidelines. 2006 fi nancial review american express company

Committed bank credit facilities do not contain changes in any of these factors may potentially limit the material adverse change clauses, which may preclude Company’s ability to securitize its loans and receivables borrowing under the credit facilities. The facilities and could introduce certain risks to the Company’s may not be terminated should there be a change in the ability to meet its financial obligations. In such a case, Company’s credit rating. the use of investment securities, asset dispositions, asset monetization strategies, and flexibility to reduce Contingent Securitization Capacity operating cash needs could be utilized to meet its A key source in the Company’s contingent funding plan liquidity needs. is asset securitization. Management expects that $20.6 billion of additional consumer loans, commercial card OFF-BALANCE SHEET ARRANGEMENTS AND loans, small business loans and cardmember receivables CONTRACTUAL OBLIGATIONS could be sold to investors through the existing The Company has identified both on- and off-balance securitization trust over the first 60 days after a liquidity sheet transactions, arrangements, obligations, and crisis has occurred. The Company has added, through other relationships that may have a material current the establishment of the Charge Trust, the capabilities to or future effect on its financial condition, changes in sell a wider variety of cardmember receivable portfolios financial condition, results of operations, or liquidity to further enhance the Company’s flexibility in accessing and capital resources. diverse funding sources on a contingency basis. The Company believes that the securitized CONTRACTUAL OBLIGATIONS financing would be available even through adverse The table below identifies on- and off-balance sheet conditions due to the structure, size, and relative transactions that represent material expected or stability of the securitization market. Proceeds from contractually committed future obligations of the secured financings completed during a liquidity crisis Company. Purchase obligations include agreements could be used to meet current obligations, to reduce or to purchase goods and services that are enforceable retire other contingent funding sources such as bank and legally binding on the Company and that specify [ 48 ] credit lines, or a combination of the two. However, significant terms, including: fixed or minimum other factors affect the Company’s ability to securitize quantities to be purchased; fixed, minimum, or variable loans and receivables, such as credit quality of the price provisions; and the approximate timing of assets and the legal, accounting, regulatory, and tax the transaction. environment for securitization transactions. Material Payments due by year 2012 and (Millions) Total 2007 2008–2009 2010–2011 thereafter On-Balance Sheet: Long-term debt $42,747 $ 8,754 $22,876 $5,682 $5,435 Other long-term liabilities(a) 4,258 1,185 1,295 752 1,026 Off-Balance Sheet: Lease obligations 2,435 227 404 313 1,491 Purchase obligations(b) 2,386 943 1,399 40 4 Total $51,826 $11,109 $25,974 $6,787 $7,956

(a) At December 31, 2006, there were no minimum required contributions, and no contributions are currently planned for the U.S. American Express Retirement Plan. For the U.S. and non-U.S. defined benefit pension and postretirement benefit plans, contributions in 2007 are anticipated to be approximately $68 million and this amount has been included within other long-term liabilities. Remaining obligations under defined benefit pension and postretirement benefit plans aggregating $588 million have not been included in the table above as the timing of such obligations is not determinable. (b) The purchase obligation amounts include expected spending by period under contracts that were in effect at December 31, 2006. Minimum contractual payments associated with purchase obligations, including termination payments, were $211 million. 2006 fi nancial review american express company

The Company also has certain contingent obligations to Liquidity and Capital Resources section and Note 5 make payments under contractual agreements entered to the Consolidated Financial Statements for details into as part of the ongoing operation of the Company’s regarding the Company’s securitization trusts. business, primarily with co-brand partners. The contingent obligations under such arrangements were CERTAIN OTHER OFF-BALANCE SHEET ARRANGEMENTS $3 billion as of December 31, 2006. In addition to the off-balance sheet contractual At December 31, 2006, the Company had approximately obligations noted above, the Company has off-balance $264 billion of unused credit available to cardmembers sheet arrangements that include guarantees, retained as part of established lending product agreements. interests in structured investments, unconsolidated Total unused credit available to cardmembers does variable interest entities and other off-balance sheet not represent potential future cash requirements, as a arrangements as more fully described below. significant portion of this unused credit will likely not be drawn. The Company’s charge card products have no GUARANTEES pre-set limit and, therefore, are not reflected in unused The Company’s principal guarantees are associated with credit available to cardmembers. As discussed in the cardmember services to enhance the value of owning Consolidated Liquidity and Capital Resources section, an American Express card. At December 31, 2006, the the Company’s securitizations of cardmember loans are Company had guarantees totaling approximately $75 also off-balance sheet. The Company’s cardmember billion related to cardmember protection plans, as well receivables securitizations remain on the Consolidated as other guarantees in the ordinary course of business Balance Sheets. that are within the scope of Financial Accounting See Note 11 to the Consolidated Financial Statements Standards Board (FASB) Interpretation No. 45, for discussion regarding the Company’s other off-balance “Guarantor’s Accounting and Disclosure Requirements sheet arrangements. for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (FIN 45). Expenses relating to RISK MANAGEMENT [ 49 ] actual claims under these guarantees were approximately INTRODUCTION $15 million for both 2006 and 2005. The key objective of risk management at American The Company had approximately $1 billion of Express is to drive profitable growth and exceptional bank standby letters of credit and bank guarantees customer experiences, while limiting the exposure to and other letters of credit within the scope of FIN 45 adverse financial impacts. By building analytical and which had supporting collateral with an approximate technological capabilities, creating transparent limits on value of $940 million. Additionally, at December risk exposures, optimizing investment decision-making, 31, 2006, the Company had $447 million of loan and identifying unacceptable risks, risk management commitments and other lines of credit, as well as contributes to the Company’s efforts to create shareholder $756 million of bank standby letters of credit, bank and customer value. guarantees, and bank commercial and other bank In addition to business risk, the Company recognizes letters of credit that were outside the scope of FIN three fundamental sources of risk: 45. At December 31, 2006, the Company held collateral Credit Risk, supporting these bank, commercial, and other letters • and lines of credit with an approximate value of $490 • Market Risk, and million. • Operational Risk. See Note 11 to the Consolidated Financial Statements for further discussion regarding the These risk types, which are described below, are Company’s guarantees. interrelated and span the Company’s business units and geographic locations. Because of their nature and scope, RETAINED INTERESTS IN ASSETS TRANSFERRED TO the Company believes in managing and monitoring UNCONSOLIDATED ENTITIES these risks centrally at the enterprise level and/or at the The Company held, as an investment, $266 million of an business unit level, as appropriate. Further, management interest-only strip in the cardmember loan securitization has adopted well-defined risk-taking principles to trust at December 31, 2006. See the Consolidated guide the Company’s business strategy, achieve long- term shareholder objectives and deliver outstanding customer experience. 2006 fi nancial review american express company

PRINCIPLES ROLES AND RESPONSIBILITIES The Company’s risk management is based on the The ERMC is chaired by the Company’s Chief Risk following three principles: Officer. Given the key role of credit risk in the Company business model, the Chief Risk Officer supervises • Independence of risk management oversight; officers responsible for (i) credit risk management, (ii) • Management of risk exposures through Board- the centralized functional task of worldwide card fraud approved risk limits; and and information management, and (iii) banking services. • Ultimate business ownership for risk-return In addition, as the Chair of the ERMC, the Chief Risk decision making. Officer is responsible for monitoring and escalating overall credit, market, and operational risk exposures The Company’s risk management leaders partner with throughout the Company. business unit managers in making risk-return decisions In addition to the Chief Risk Officer, the ERMC is using standardized risk metrics with predictable composed of: outcomes. The measurement and reporting of these risks are performed independently by risk management • The senior risk leaders responsible for enterprise- leaders. Both risk and business unit managers remain wide market and operational risk; jointly accountable for the outcome of risk-return • The enterprise-wide leaders of compliance, decisions within these established limits. controllership, and information security; and

GOVERNANCE • The senior risk leaders representing all three operating segments of the Company. The Company’s risk management governance begins with the Board oversight of risk management parameters. As the most senior risk management entity, the The Audit Committee approves the Company’s risk ERMC draws on its significant expertise to analyze management objectives, risk limits and policies. The risk comprehensively and determine acceptable risk Global Leadership Team (GLT) and the Enterprise- thresholds across the Company. wide Risk Management Committee (ERMC) support [ 50 ] In order to enhance its enterprise-wide risk the Board in their oversight function. In addition to assessment, the ERMC continues to upgrade risk risk-return decision-making, the GLT works with the management capabilities that help the Company ERMC to invest in core risk capabilities and increase make better business and investment decisions as well Company-wide awareness of risk-return tradeoffs. The as strengthen measuring, managing and transparent ERMC leads the Company’s overall risk management reporting of risk. The ERMC also launches focused activities by measuring and monitoring enterprise-wide risk management initiatives to assess the sources of risk and establishing policies and practices. significant exposures. Daily risk management occurs at the business unit Under the ERMC leadership, committees governing level where the processes and infrastructure necessary each risk type are established. These committees to measure and manage risk are integrated into business are responsible for translating the ERMC guidance unit goals. Business unit managers, in partnership with and enterprise-wide risk policies into policies and independent risk management leaders, make decisions procedures for their corresponding risk types, managing on how to optimize risk-return tradeoffs and contain and monitoring those risks, and strengthening risk within established limits. risk capabilities. The Company has also developed a process that provides increased scrutiny throughout the risk CREDIT RISK MANAGEMENT PROCESS management governance structure and requires higher Credit risk is defined as the risk of loss from obligor or levels of approval for exposures above defined risk counterparty default. Leadership for overall credit risk thresholds. The escalation process is designed to ensure management at the Company rests with the Chief Risk that the large majority of transactions and initiatives can Officer. Credit risks in the Company can be divided into proceed within existing business unit risk management two broad categories, each with distinct risk management processes, while risks that are either large or with tools and metrics: consumer credit risk and institutional enterprise-wide implications receive enhanced scrutiny. credit risk. 2006 fi nancial review american express company

CONSUMER CREDIT RISK Unlike consumer credit risk, institutional credit risk Consumer credit risk arises principally from the is characterized by a lower loss frequency but higher Company’s portfolio of consumer and small business severity. It is affected both by general economic conditions charge cards, credit cards, lines of credit, and loans. Since and by borrower-specific events. The Company’s senior such portfolio consists of millions of borrowers across risk officers recognize that the absence of large losses multiple geographies, occupations, and social segments, in any given year or over several years is not necessarily its risk is substantially reduced through diversification. representative of the risk of institutional portfolios, given In addition, the Company benefits from the fact that the infrequency of loss events in such portfolios. the credit profile of its cardmembers is better than that Under the governance of the Institutional Risk of its many competitors, which is a combined result of Management Committee (IRMC), the credit officers the brand positioning, underwriting, and customer of each business unit make investment decisions in management policies, premium customer servicing, and core risk capabilities, ensure proper implementation of product reward features. The level of consumer credit the underwriting standards and contractual rights of risk losses is more driven by general economic and legal risk mitigation, monitor risk exposures, and determine conditions than by borrower-specific events. risk mitigation actions. The IRMC formally reviews Consumer credit risk is managed within a highly large institutional exposures to ensure compliance with organized structure of policies covering all facets of ERMC guidelines and procedures. At the same time, credit extension, including prospecting, approvals, the IRMC provides continuous guidance to business unit authorizations, line management, collections, and fraud risk teams to optimize risk-adjusted returns on capital. prevention. The policies ensure consistent application A company-wide risk rating utility and a specialized of credit management principles and standardized airline risk group provide independent risk assessment of reporting of asset quality and loss recognition. Moreover, institutional obligors. consumer credit risk management is supported by sophisticated proprietary scoring and decision-making MARKET RISK MANAGEMENT PROCESS models. Market risk is the risk to earnings or value resulting [ 51 ] Credit underwriting decisions are made based on from movements in market prices. The Company’s non- sophisticated evaluation of product economics and trading related market risk consists of: customer behavior predictions. The Company has • Interest rate risk in its card, insurance, and certificate developed unique decision logic for each customer businesses; and interaction, including prospect targeting, new accounts, Foreign exchange risk in its international operations. line assignment, balance transfer, cross sell, and • account management. Each decision has benefited from Market risk is centrally managed by the corporate sophisticated modeling capability that uses the most up- treasurer, who also acts as the Vice Chairman of the to-date proprietary information on customers, including ERMC. Within each business, market risk exposures payment history, purchase data, as well as insights from are monitored and managed by various asset/liability data feeds from credit bureaus. committees, guided by Board-approved policies In addition to the impact of improved risk covering derivative financial instruments, funding and management processes, the Company’s overall consumer investments. Derivative financial instruments derive credit performance has also benefited from the shifting their value from an underlying variable or multiple mix of the portfolio towards products that reward the variables, including commodity, equity, foreign customer for spending. Rewards attract higher spending exchange, and interest rate indices or prices. These from premium customers, which in turn leads to lower instruments enable end users to increase, reduce or alter credit loss rates. exposure to various market risks and, for that reason, While consumer credit risk indicators have continued are an integral component of the Company’s market to show steady progress, the Company’s objective of risk and related asset/liability management strategy driving profitable growth may be accomplished by the and processes. Use of derivative financial instruments launch of new products or of existing products in new is incorporated into the discussion below as well as markets, which may exhibit higher loss rates. Note 10 to the Consolidated Financial Statements. Market exposure is a byproduct of the delivery of INSTITUTIONAL CREDIT RISK products and services to cardmembers. Interest rate Institutional credit risk arises principally within the risk is generated by funding cardmember charges and Company’s corporate card, establishment services, fixed-rate loans with variable rate borrowings. These network services, and international banking businesses. 2006 fi nancial review american express company

assets and liabilities generally do not create naturally hedge accounting; however, derivative hedging activities offsetting positions with respect to basis, re-pricing, or related to translation exposure of foreign operations maturity characteristics. generally do. For the Company’s charge card and fixed-rate With respect to cross-currency charges and balance lending products, interest rate exposure is managed by sheet exposures, including related foreign exchange shifting the mix of funding toward fixed-rate debt and forward contracts outstanding, the effect on the by using derivative instruments, with an emphasis on Company’s earnings of a hypothetical 10 percent change interest rate swaps, which effectively fix interest expense in the value of the U.S. dollar would be immaterial as of for the length of the swap. The Company endeavors December 31, 2006. With respect to foreign currency to lengthen the maturity of interest rate hedges in earnings, the adverse impact on pretax income of a periods of low or falling interest rates and to shorten 10 percent strengthening of the U.S. dollar related their maturity in periods of high or rising interest to anticipated overseas operating results for the next twelve months, including any related foreign exchange rates. For the majority of its cardmember loans, which option contracts entered into in January 2007, would are linked to a floating rate base and generally reprice hypothetically be $71 million as of December 31, 2006. each month, the Company uses floating rate funding. With respect to translation exposure of foreign The Company regularly reviews its strategy and may operations, including related foreign exchange forward modify it. Non-trading interest rate derivative financial contracts outstanding, a 10 percent strengthening in the instruments, primarily interest rate swaps, with notional U.S. dollar would result in an immaterial reduction in amounts of approximately $10 billion and $22 billion equity as of December 31, 2006. were outstanding at December 31, 2006 and 2005, In conjunction with its international banking respectively. These derivatives generally qualify for hedge operations, the Company uses derivative financial accounting. A portion of these derivatives outstanding as instruments to manage market risk related to specific of December 31, 2006, extend to 2015. interest rate, foreign exchange and price risk exposures The detrimental effect on the Company’s pretax arising from deposits, loans and debt and equity earnings of a hypothetical 100 basis point increase [ 52 ] securities holdings, and limited trading positions. At in interest rates would be approximately $263 million December 31, 2006 and 2005, interest rate products ($250 million related to the U.S. dollar), based on the related to trading and non-trading positions with notional 2006 year-end positions. This effect, which is calculated amounts totaling approximately $29 billion and $17 using a static asset liability gapping model, is primarily billion, respectively, were outstanding. Additionally, equity determined by the volume of variable rate funding of products related to trading and non-trading positions charge card and fixed-rate lending products for which with notional amounts of $533 million and $740 million, the interest rate exposure is not managed by derivative respectively, were outstanding at December 31, 2006 financial instruments. and 2005. These derivatives generally do not qualify Foreign exchange risk is generated by cardmember for hedge accounting. cross-currency charges, foreign currency denominated As noted, market risk arises from the international balance sheet exposures, translation exposure of foreign banking trading activities in foreign exchange (both operations, and foreign currency earnings in international directly through daily exchange transactions as well units. The Company’s foreign exchange risk is managed as through foreign exchange derivatives), interest rate primarily by entering into agreements to buy and sell derivatives (primarily swaps), equity derivatives and currencies on a spot basis or by hedging this market securities trading. Proprietary positions taken in foreign exposure to the extent it is economically justified through exchange instruments, interest rate risk instruments various means, including the use of derivative financial and the securities portfolios are monitored daily against instruments such as foreign exchange forward, options, Value-at-Risk (VaR) limits. The VaR methodology the and cross-currency swap contracts, which can help “lock Company uses to measure the daily exposure from trading in” the Company’s exposure to specific currencies. activities is calculated using a parametric technique with At December 31, 2006 and 2005, foreign currency a correlation matrix based upon historical data. The products with total notional amounts of approximately VaR measure uses a 99 percent confidence interval to $48 billion and $30 billion, respectively, were estimate potential trading losses over a one-day period. outstanding. Derivative hedging activities related to The average VaR for trading activities was less than cross-currency charges, balance sheet exposures, and $1 million for both 2006 and 2005. foreign currency earnings generally do not qualify for 2006 fi nancial review american express company

OPERATIONAL RISK MANAGEMENT PROCESS based on the volume of merchant business generated The Company defines operational risk as the risk of not by cardmembers. Within the U.S. Card Services and achieving business objectives due to inadequate or failed International Card & Global Commercial Services processes or information systems, human error or the segments, discount revenue reflects the issuer component external environment (e.g., natural disasters) including of the overall discount rate; within the Global Network losses due to failures to comply with laws and regulations. & Merchant Services segment, discount revenue reflects Operational risk is inherent in all business activities and the network and merchant component of the overall can impact an organization through direct or indirect discount rate. Net finance charge revenue and net card financial loss, brand damage, customer dissatisfaction, fees are directly attributable to the segment in which or legal or regulatory penalties. they are reported. The Company’s operational risk governance structure includes the Operational Risk Management EXPENSES Committee, which is responsible for maintaining the Marketing, promotion, rewards and cardmember operational risk framework and related policies and for services expenses are reflected in each segment based on overseeing the Company’s operational risk program. actual expenses incurred, with the exception of brand The Committee is chaired by the Chief Operational advertising, which is reflected in the Global Network & Risk Officer and Vice Chairman of the ERMC, and has Merchant Services segment. member representation from business units and support The provision for losses and benefits includes credit- groups. The business units have the responsibility for related expenses and interest credited on investment implementing the framework as well as for the day-to- certificates directly attributable to the segment in which day management of operational risk. they are reported. Managing operational risk is an important priority Human resources and other operating expenses for the Company. To mitigate such risk, the Company reflect expenses incurred directly within each segment. has developed a comprehensive program to identify, In addition, expenses related to the Company’s support measure, monitor, and report inherent and emerging services are allocated to each segment based on support service activities directly attributable to the segment. operational risks. The Company has a multi-year [ 53 ] program, which uses the same process risk self- Other overhead expenses are allocated to segments assessment methodology used to facilitate compliance based on each segment’s level of pretax income. with Section 404 of the Sarbanes-Oxley Act, to effect Financing requirements are managed on a consolidated non-financial operational risk self assessments. The basis. Funding costs are allocated based on segment Company also has a reporting process that provides funding requirements. business unit leaders with operational risk information on a quarterly basis to help them assess the overall CAPITAL operational risks of their business units. These initiatives Each business segment is allocated capital based on have resulted in improved operational risk intelligence established business model operating requirements, risk and a heightened level of preparedness to manage risk measures, and regulatory capital requirements. Business events and conditions that may adversely impact the model operating requirements include capital needed to Company’s operations. support operations and specific balance sheet items. The risk measures include considerations for credit, market, and operational risk. BUSINESS SEGMENT RESULTS

The Company is principally engaged in businesses INCOME TAXES comprising three reportable operating segments: U.S. Income tax provision (benefit) is allocated to each Card Services, International Card & Global Commercial business segment based on the effective tax rates Services, and Global Network & Merchant Services. applicable to various businesses that make up Results of the business segments essentially treat each the segment. segment as a stand-alone business. The management reporting process that derives these results allocates ASSETS income and expense using various methodologies as Assets are those that are used or generated exclusively by described below. each segment. NET REVENUES The following segment results are presented on a GAAP basis except as otherwise noted in the U.S. Card The Company allocates discount revenue and certain Services discussion. other revenues among segments using a transfer pricing methodology. Segments earn discount revenue 2006 fi nancial review american express company

U.S. CARD SERVICES

SELECTED INCOME STATEMENT DATA SELECTED STATISTICAL INFORMATION GAAP BASIS PRESENTATION Years Ended December 31, Years Ended December 31, (Billions, except percentages (Millions) 2006 2005 2004 and where indicated) 2006 2005 2004 Net revenues: Card billed business $ 333.4 $ 292.8 $ 251.7 Total cards-in-force (millions) 40.7 37.5 35.0 Discount revenue, net card Basic cards-in-force (millions) 30.1 27.7 25.7 fees and other $9,989$ 8,926 $ 7,940 Average basic cardmember Cardmember lending: spending (dollars) $11,521 $10,996 $10,118 Finance charge revenue 3,434 2,408 1,776 U.S. Consumer Travel Interest expense 957 616 406 Travel sales $2.4$ 1.9 $ 1.5 Travel commissions and Net finance charge revenue 2,477 1,792 1,370 fees/sales 8.4% 8.7% 8.9% Securitization income: Worldwide Travelers Cheque Excess spread, net (excluding and prepaid products: servicing fees)(a) 1,055 811 671 Sales $19.7$ 19.7 $ 19.9 Servicing fees 407 412 388 Average outstanding $7.0$ 7.1 $ 7.0 Average investments $7.7$ 7.8 $ 7.5 Gains on sales from Investment yield(a) 4.9% 5.1% 5.4% (b) securitizations 27 37 73 Tax equivalent Securitization income, net 1,489 1,260 1,132 yield — managed(a) 7.6% 7.9% 8.4% Total net revenues 13,955 11,978 10,442 Total segment assets $79.7$ 70.3 $ 58.3 Segment capital $5.0$ 5.1 $ 4.5 Expenses: Return on segment capital(b) 46.2% 38.9% 38.5% Marketing, promotion, Cardmember receivables: rewards and cardmember Total receivables $20.6$ 19.2 $ 17.4 services 4,509 3,911 3,325 90 days past due as Provision for losses 1,630 1,676 1,508 a % of total 2.1% 1.8% 2.0% [ 54 ] Human resources and other Net loss ratio as a % operating expenses 4,511 3,820 3,449 of charge volume 0.28% 0.30% 0.30% Total expenses 10,650 9,407 8,282 Cardmember lending — owned basis(c): Pretax segment income 3,305 2,571 2,160 Total loans $33.6$ 24.8 $ 19.6 Income tax provision 1,028 755 629 30 days past due loans as a % Segment income $2,277$ 1,816 $ 1,531 of total 2.7% 2.3% 2.4% Average loans $27.6$ 21.0 $ 17.9 (a) Excess spread is the net positive cash flow from interest and fee Net write-off rate 3.0% 3.9% 3.9% collections allocated to the investor’s interests after deducting the Net finance charge revenue/ interest paid on investor certificates, credit losses, contractual servicing fees, and other expenses. average loans 9.0% 8.5% 7.7% Cardmember lending — (b) Excludes $83 million and $(104) million in 2006, $144 million (d) and $(118) million in 2005, and $157 million and $(79) million managed basis : in 2004, of impact from cardmember loan sales and maturities, Total loans $53.8$ 46.0 $ 39.9 respectively, reflected in credit provision. 30 days past due loans as a % of total 2.6% 2.3% 2.5% Average loans $48.0$ 41.5 $ 37.3 Net write-off rate 2.9% 4.1% 4.3% Net finance charge revenue/ average loans 9.1% 9.0% 8.6%

(a) Investment yield represents earnings on certain tax-exempt securities. The tax equivalent yield – managed represents earnings on such tax-exempt securities as if it had been earned on a taxable basis and assumes a federal income tax rate of 35 percent. (b) Computed on a trailing 12-month basis using segment income and equity capital allocated to segments based upon specific business operational needs, risk measures, and regulatory capital requirements. (c) “Owned,” a GAAP basis measurement, reflects only cardmember loans included in the Company’s Consolidated Balance Sheets. (d) Includes on-balance sheet cardmember loans and off-balance sheet securitized cardmember loans. The difference between the “owned basis” (GAAP) information and “managed basis” information is attributable to the effects of securitization activities. Refer to the information set forth under “Differences between GAAP and Managed Basis Presentation” below for further discussion of the managed basis presentation. 2006 fi nancial review american express company

RESULTS OF OPERATIONS FOR THE THREE YEARS the charge related to a higher ultimate redemption rate ENDED DECEMBER 31, 2006 – GAAP BASIS estimate within the Membership Rewards reserve in the The following discussion of U.S. Card Services’ segment U.S. discussed previously, and increased marketing and results of operations is presented on a GAAP basis. promotion costs. Provision for losses decreased 3 percent U.S. Card Services reported segment income of $2.3 in 2006 compared to 2005 due to a comparatively lower billion for 2006, a 25 percent increase from $1.8 billion level of bankruptcy-related charge offs, lower than in 2005, which increased 19 percent from 2004. expected costs for Hurricane Katrina losses that were provided for in 2005, as well as improved collections, Net Revenues and continued strong credit quality, partially offset by In 2006, U.S. Card Services’ net revenues increased 17 the impact of strong volume and loan growth. Human percent to $14.0 billion primarily due to higher discount resources and other operating expenses of $4.5 billion revenue, net card fees and other, increased cardmember in 2006 increased 18 percent from 2005. The increase lending net finance charge revenue, and as discussed was due to higher interest expense, greater professional previously, greater securitization income, net. Discount services expenses, increased human resources expenses, revenue, net card fees and other of $10.0 billion in 2006, higher technology service fees, and generally higher rose 12 percent from 2005, largely due to higher billed volume-related and business-building expenses. business volumes and the Travelers Cheque and Gift The effective tax rate was 31 percent in 2006, Card investment portfolio gain discussed previously. compared to 29 percent in 2005 and 2004. 2005 The 14 percent increase in billed business in 2006 included a $29 million tax benefit primarily related to reflected a 5 percent increase in spending per proprietary the finalization of state tax returns. basic card and a 9 percent growth in basic cards-in-force. Within the U.S. consumer business, billed business grew DIFFERENCES BETWEEN GAAP AND MANAGED BASIS PRESENTATION 13 percent and small business volumes rose 16 percent in 2006. Net finance charge revenue of $2.5 billion For U.S. Card Services, the managed basis presentation in 2006 was 38 percent higher than in 2005, primarily reflects an increase to interest income recorded to enable due to 31 percent growth in average owned lending management to evaluate tax exempt investments on [ 55 ] balances and a higher net portfolio yield, partially offset a basis consistent with taxable investment securities. by the impact of higher than anticipated cardmember On a GAAP basis, interest income associated with completion of consumer debt repayment programs and tax exempt investments is recorded based on amounts associated payment waivers. Net revenues of $12.0 billion earned. Accordingly, information presented on a in 2005 were 15 percent higher than 2004 as a result of managed basis assumes that tax exempt securities earned increased discount revenues, net card fees and other, and income at rates as if the securities produced taxable cardmember lending net finance charge revenue. income with a corresponding increase in the provision for income taxes. Expenses The managed basis presentation also assumes that there have been no off-balance sheet securitization During 2006, U.S. Card Services’ expenses increased transactions, i.e., all securitized cardmember loans and 13 percent to $10.7 billion, primarily due to greater related income effects are reflected as if they were in human resources and other operating expenses, and the Company’s balance sheets and income statements, higher marketing, promotion, rewards and cardmember respectively. For the managed basis presentation, services expenses, partially offset by a lower provision revenue and expenses related to securitized cardmember for losses. Expenses in 2006 and 2005 included $35 loans are reflected in net card fees and other, net finance million and $10 million, respectively, of charges related charge revenue, and credit provision. On a managed to reengineering activities primarily within the Travelers basis, there is no securitization income, net, as the Cheque business and operations area. Expenses in 2005 managed basis presentation assumes no securitization of $9.4 billion were 14 percent higher than in 2004, transactions have occurred. primarily due to higher marketing, promotion, rewards The Company presents U.S. Card Services and cardmember services expenses, greater human information on a managed basis because that is the way resources and other operating expenses, and higher the Company’s management views and manages the provisions for losses. business. Management believes that a full picture of Marketing, promotion, rewards and cardmember trends in the Company’s cardmember lending business services expenses increased 15 percent in 2006 to $4.5 can only be derived by evaluating the performance billion, due to higher volume-related rewards costs, 2006 fi nancial review american express company

of both securitized and non-securitized cardmember U.S. CARD SERVICES loans. Management also believes that use of a managed basis presentation presents a more accurate picture of SELECTED FINANCIAL INFORMATION MANAGED BASIS PRESENTATION the key dynamics of the cardmember lending business. Years Ended December 31, Irrespective of the on- and off-balance sheet funding (Millions) 2006 2005 2004 mix, it is important for management and investors to Discount revenue, net card fees see metrics for the entire cardmember lending portfolio and other: because they are more representative of the economics Reported for the period of the aggregate cardmember relationships and ongoing (GAAP) $9,989$ 8,926 $ 7,940 business performance and trends over time. It is also Securitization adjustments(a) 199 210 210 important for investors to see the overall growth of Tax adjustments(b) 217 226 228 cardmember loans and related revenue in order to Managed discount revenue, evaluate market share. These metrics are significant net card fees and other $10,405 $ 9,362 $ 8,378 in evaluating the Company’s performance and can Net finance charge revenue: only be properly assessed when all non-securitized and Reported for the period securitized cardmember loans are viewed together on (GAAP) $2,477$ 1,792 $ 1,370 a managed basis. The Company does not currently Securitization adjustments(a) 1,880 1,953 1,838 securitize international loans. Managed net finance charge On a GAAP basis, revenue and expenses from revenue $4,357$ 3,745 $ 3,208 securitized cardmember loans are reflected in the Securitization income, net: Company’s income statements in securitization Reported for the period (GAAP) $1,489$ 1,260 $ 1,132 income, net, fees and commissions, and credit Securitization adjustments(a) (1,489) (1,260) (1,132) provision for cardmember lending. At the time of a Managed securitization securitization transaction, the securitized cardmember income, net $—$—$— loans are removed from the Company’s balance [ 56 ] Provision for losses: sheet, and the resulting gain on sale is reflected in Reported for the period securitization income, net, as well as an impact to (GAAP) $1,630$ 1,676 $ 1,508 credit provision (credit reserves are no longer recorded Securitization adjustments(a) 550 924 942 for the cardmember loans once sold). Over the life of Managed provision for losses $2,180$ 2,600 $ 2,450 a securitization transaction, the Company recognizes (a) The managed basis presentation assumes that there have been no servicing fees and other net revenues (referred to off-balance sheet securitization transactions, i.e., all securitized as “excess spread”) related to the interests sold to cardmember loans and related income effects are reflected as if they were in the Company’s balance sheets and income statements, investors (i.e. the investors’ interests). These amounts respectively. For the managed basis presentation, revenue and are reflected in securitization income, net, and fees expenses related to securitized cardmember loans are reflected in net card fees and other, net finance charge revenue, and credit and commissions. The Company also recognizes net provision. On a managed basis, there is no securitization income, finance charge revenue over the life of the securitization net, as the managed basis presentation assumes no securitization transaction related to the interest it retains (i.e. the transactions have occurred. (b) The managed basis presentation reflects an increase to interest seller’s interest). At the maturity of a securitization income recorded to enable management to evaluate tax exempt transaction, cardmember loans on the balance sheet investments on a basis consistent with taxable investment securities. On a GAAP basis, interest income associated with increase, and the impact of the incremental required tax exempt investments is recorded based on amounts earned. loss reserves is recorded in credit provision. Accordingly, information presented on a managed basis assumes that tax exempt securities earned income at rates as if the securities As presented, in aggregate over the life of a produced taxable income with a corresponding increase in the securitization transaction, the pretax income impact to provision for income taxes. the Company is the same whether or not the Company had securitized cardmember loans or funded these loans through other financing activities (assuming the same financing costs). The income statement classifications, however, of specific items will differ. 2006 fi nancial review american express company

RESULTS OF OPERATIONS FOR THE THREE YEARS INTERNATIONAL CARD & GLOBAL ENDED DECEMBER 31, 2006 – MANAGED BASIS COMMERCIAL SERVICES The following discussion of U.S. Card Services is on a managed basis. SELECTED STATISTICAL INFORMATION Discount revenue, net card fees and other in 2006 and Years Ended December 31, (Billions, except percentages 2005 increased 11 percent and 12 percent to $10.4 billion and where indicated) 2006 2005 2004 and $9.4 billion, respectively, largely due to increases in Card billed business $ 193.1 $ 168.5 $ 148.6 (a) billed business volumes, and also, the Travelers Cheque Total cards-in-force (millions) 22.3 22.7 21.6 and Gift Card investment portfolio gain in 2006 discussed Basic cards-in-force (millions) 17.9 18.0 17.2 Average basic cardmember previously. Net finance charge revenue increased 16 spending (dollars) $10,681 $ 9,641 $ 8,610 percent to $4.4 billion in 2006, primarily due to 16 Global Corporate & percent growth in the average managed lending balances International Consumer Travel and a higher net portfolio yield, partially offset by charges Travel sales $19.4$ 18.8 $ 18.4 related to the higher than anticipated cardmember Travel commissions and fees/sales 8.1% 8.6% 9.0% completion of consumer debt repayment programs and International banking: associated payment waivers. Net finance charge revenue Total loans $7.2$ 7.1 $ 6.9 of $3.7 billion in 2005 rose 17 percent compared to 2004, Private banking primarily due to growth in average lending balances holdings $22.5$ 20.3 $ 18.6 and a higher portfolio yield. Total provision for losses Total segment assets $57.7$ 51.7 $ 47.9 decreased 16 percent to $2.2 billion for 2006, reflecting Segment capital $4.1$ 4.1 $ 3.8 (b) a comparatively lower level of bankruptcy-related charge Return on segment capital 20.9% 23.2% 21.2% Cardmember receivables: offs, lower than expected costs for Hurricane Katrina Total receivables $16.3$ 14.5 $ 13.7 losses that were provided for in 2005, as well as improved 90 days past due as a % of total 1.4% 1.3% 1.5% collections, and continued strong credit quality, partially Net loss ratio as a % of offset by the impact of strong volume and loan growth. charge volume 0.18% 0.21% 0.19% Total provision for losses increased 6 percent in 2005 Cardmember lending: [ 57 ] due to strong volume increases, higher provision rates, Total loans $ 9.7 $ 8.3 $ 7.3 reflecting the impact of the bankruptcy legislation enacted 30 days past due loans as a % of total 2.9% 2.8% 2.3% in October 2005, and a provision for the estimated costs Average loans $8.9$ 7.4 $ 6.7 related to Hurricane Katrina. Net write-off rate 5.9% 4.7% 5.2% Net finance charge INTERNATIONAL CARD & GLOBAL revenue/average loans 9.1% 9.3% 9.6% COMMERCIAL SERVICES (a) Cards-in-force at December 31, 2006, reflect the transfer of 1.3 million proprietary cards in Brazil, and approximately 200,000 proprietary cards in Malaysia and Indonesia to Global Network Services SELECTED INCOME STATEMENT DATA during 2006. Years Ended December 31, (b) Computed on a trailing 12-month basis using segment income and (Millions) 2006 2005 2004 equity capital allocated to segments based upon specific business Net revenues: operational needs, risk measures and regulatory capital requirements. Discount revenue, net card fees and other $8,656 $8,221 $7,783 RESULTS OF OPERATIONS FOR THE THREE YEARS Cardmember lending: ENDED DECEMBER 31, 2006 Finance charge revenue 1,240 1,035 907 International Card & Global Commercial Services Interest expense 432 351 267 reported segment income of $885 million for 2006, a Net finance charge revenue 808 684 640 2 percent decrease from $899 million in 2005, which Total net revenues 9,464 8,905 8,423 increased 19 percent from 2004. Expenses: Marketing, promotion, rewards and cardmember services 1,429 1,269 1,130 Net Revenues Provision for losses and benefits 1,358 1,023 740 In 2006, International Card & Global Commercial Human resources and other Services’ discount revenue, net card fees, and other operating expenses 5,529 5,520 5,480 revenues increased 5 percent to $8.7 billion driven Total expenses 8,316 7,812 7,350 Pretax segment income 1,148 1,093 1,073 primarily by the higher level of card spending, which Income tax provision 263 194 319 was offset by a decrease in net card fees due to the Segment income $885$ 899 $ 754 reclassification of certain card acquisition-related costs 2006 fi nancial review american express company

as discussed previously. Growth was also suppressed by Membership Rewards ultimate redemption rate estimate the corporate travel environment, increased incentives previously discussed. Total provisions for losses and for corporate clients associated with growth in corporate benefits increased 33 percent in 2006 compared to 2005, volumes, and the impact of the sales of card-related principally due to higher interest rates on investment activities in Brazil, Malaysia, and Indonesia. The 15 certificate balances, strong volume and loan growth, and percent increase in billed business in 2006 reflected an a higher level of charge offs primarily related to industry- 11 percent increase in spending per proprietary basic wide credit issues in Taiwan. card and a 1 percent decline in basic cards-in-force after The effective tax rate was 23 percent in 2006 the transfer of cards in Brazil, Malaysia, and Indonesia versus 18 percent in 2005 and 30 percent in 2004. The to Global Network Services during 2006. Assuming effective tax rate in 2006 reflected a higher tax expense no changes in foreign currency exchange rates from related to uncertainty regarding the Company’s ability 2005 to 2006 and excluding the impact of the sales of to obtain tax benefits for certain expenses attributable Brazil, Malaysia, and Indonesia, billed business and to foreign subsidiaries, a relatively high effective tax rate spending per proprietary basic card-in-force increased due to the impact of foreign exchange translation on the 15 percent and 9 percent, respectively, in 2006, and all gain on the sale of the Company’s investment in EAB, of the Company’s major geographic regions experienced and a relatively low effective tax rate benefit on credit double digit growth. International consumer and small losses in Taiwan. These items were offset by a relatively business spending, and global corporate spending rose 13 low effective tax rate on the sale of the Company’s card percent and 16 percent, respectively, compared to 2005. and merchant-related activities in Brazil, resulting Net finance charge revenue rose 18 percent to $808 principally from the difference between the applicable million in 2006, primarily due to 20 percent growth Brazil tax rate and the higher U.S. statutory rate. in the average cardmember lending balances, which The effective tax rate was lower in 2005 as compared was partially offset by a lower net portfolio yield. Net to 2004 primarily due to tax benefits of $33 million, revenues of $8.9 billion in 2005 were 6 percent higher resulting from the resolution of IRS audits of previous than 2004 as a result of increased discount revenue, net years’ returns, in addition to the positive effect of [ 58 ] card fees, and other revenues. changes in the Company’s international funding strategy in 2004. Expenses During 2006, International Card & Global Commercial GLOBAL NETWORK & MERCHANT SERVICES Services’ expenses increased 6 percent to $8.3 billion, due to increased provisions for losses and benefits, and SELECTED INCOME STATEMENT DATA higher marketing, promotion, rewards and cardmember Years Ended December 31, (Millions) 2006 2005 2004 services expenses. Expenses in 2006 reflected a Net revenues: $240 million gain related to the sales of card-related Discount revenue, fees and other $3,161 $2,747 $2,531 activities in Brazil, Malaysia, and Indonesia as well as Expenses: the sale of an investment in EAB, which was reported Marketing and promotion 518 604 389 as a reduction to human resources and other operating Provision (benefit) for losses 89 66 (2) expenses. Expenses in 2006 and 2005 included $94 Human resources and other million and $168 million, respectively, of reengineering operating expenses 1,366 1,195 1,233 costs primarily related to restructuring efforts in the Total expenses 1,973 1,865 1,620 Corporate Travel business, and international operations Pretax segment income 1,188 882 911 areas. Expenses in 2005 of $7.8 billion were 6 percent Income tax provision 409 309 332 higher than 2004 primarily due to increased provision Segment income $ 779 $ 573 $ 579 for losses and benefits, higher marketing and promotion expenses, and greater rewards costs. Marketing, promotion, rewards and cardmember services expenses of $1.4 billion increased 13 percent in 2006, due to greater volume-related rewards costs, which was partially offset by a moderate reduction in marketing and promotion costs. The increased marketing, promotion, rewards and cardmember services expenses in 2006 also reflected the adjustments related to 2006 fi nancial review american express company

GLOBAL NETWORK & MERCHANT SERVICES Expenses During 2006, Global Network & Merchant Services’ SELECTED STATISTICAL INFORMATION expenses increased 6 percent to $2.0 billion due to Years Ended December 31, increased human resources and other operating expenses (Billions, except percentages and where indicated) 2006 2005 2004 and provision for losses, offset by lower marketing Global Card billed business(a) $561.5 $484.4 $416.1 and promotion expenses. Expenses in 2006 and 2005 Global Network & included $8 million and $3 million of reengineering Merchant Services: costs, respectively. Expenses in 2005 of $1.9 billion were Total segment assets $ 4.4 $ 4.5 $ 3.9 15 percent higher than 2004, primarily due to higher Segment capital $ 1.3 $ 1.3 $ 1.1 marketing and promotion expenses, and increased costs Return on segment capital(b) 60.3% 49.2% 56.2% for provision for losses offset by a decrease in human Global Network Services(c): resources expenses and other operating expenses. Card billed business $ 35.4 $ 24.0 $ 17.7 Marketing and promotion expenses decreased 14 Total cards-in-force (millions)(d) 15.0 10.8 8.8 percent in 2006 to $518 million, reflecting a reduction in

(a) Global Card billed business includes activities (including cash brand-related advertising costs versus last year when the advances) related to proprietary cards, cards issued under network “MyLife, MyCard (SM)” campaign was in a particularly partnership agreements, and certain insurance fees charged on proprietary cards. active phase. Provision for losses increased 35 percent (b) Computed on a trailing 12-month basis using segment income due to higher merchant-related provisions. Human and equity capital allocated to segments based upon specific resources and other operating expenses of $1.4 billion business operational needs, risk measures, and regulatory capital requirements. in 2006 increased 14 percent, reflecting higher business (c) Billed business and cards-in-force reflect the transfer, effective volumes, greater salary, incentive and benefit costs, and January 1, 2006, to International Card & Global Commercial an adjustment in amortization of an intangible asset Services’ segment of corporate card accounts in certain emerging markets that had been managed within Global Network Services. relating to an overseas joint venture. This was partially (d) Cards-in-force for 2006 reflect the transfer of 1.3 million offset by a larger interest expense credit that recognizes proprietary cards in Brazil, and approximately 200,000 proprietary the merchant services’ accounts payable-related funding cards-in-force in Malaysia and Indonesia from the International [ 59 ] Card & Global Commercial Services segment during second benefit and the previously discussed merchant-related quarter 2006 and third quarter 2006, respectively. Brazil gain. The effective tax rate was 34 percent in 2006 versus RESULTS OF OPERATIONS FOR THE THREE YEARS 35 percent in 2005 and 36 percent in 2004. ENDED DECEMBER 31, 2006 Net Revenues CORPORATE & OTHER Global Network & Merchant Services reported segment Corporate & Other had net expense of $212 million, income of $779 million in 2006, a 36 percent increase $67 million, and $178 million in 2006, 2005, and 2004, from $573 million in 2005, which was 1 percent lower respectively. Net expense in 2006 reflected $17 million than in 2004. ($11 million after-tax) of reengineering costs. 2005 items In 2006, Global Network & Merchant Services’ net included a $159 million tax benefit resulting from the revenues increased 15 percent to $3.2 billion reflecting resolution of prior years’ tax items, a $112 million ($73 growth in merchant-related fees, primarily generated million after-tax) September 11, 2001-related insurance from the 16 percent increase in global card billed business recovery, partially offset by $105 million ($68 million as well as higher network partner-related revenues. Net after-tax) of reengineering costs. In addition, the revenues of $2.7 billion in 2005 were 9 percent higher comparison of 2006 to 2005 and 2004 reflects efforts to than 2004 as a result of higher discount revenue, fees eliminate overhead that was supportive of Ameriprise. and other revenues primarily due to growth in merchant- The Company maintained a $200 million equity related fees generated from strong growth in global card investment in the Industrial & Commercial Bank of billed business, partially offset by a decrease in other China (ICBC), which was accounted for at cost. On revenues as a result of the 2004 sale of the ATM business October 27, 2006, ICBC completed an initial public and the impact of a lower overall discount rate. offering. The Company will continue to be required to account for its investment at cost for approximately two years due to contractual sales restrictions, at which time the Company will make a determination whether to classify the investment as either Available-for-Sale or Trading securities. 2006 fi nancial review american express company

AIRLINE INDUSTRY MATTERS Given the depth of the Company’s business Historically, the Company has not experienced relationships with Delta through the SkyMiles Credit significant revenue declines when a particular airline Card and Delta’s participation as a key partner in the scales back or ceases operations due to a bankruptcy Company’s Membership Rewards program, in the or other financial challenges. This is because volumes event Delta’s reorganization under the bankruptcy laws generated by that airline are typically shifted to other is not successful or otherwise negatively impacts the participants in the industry that accept the Company’s Company’s relationship with Delta, the Company’s card products. Nonetheless, the Company is exposed to future financial results could be adversely impacted. business and credit risk in the airline industry primarily As previously disclosed, American Express’ Delta through business arrangements where the Company SkyMiles Credit Card co-brand portfolio accounts for has remitted payment to the airline for a cardmember less than 10 percent of the Company’s worldwide billed purchase of tickets that have not yet been used or business and less than 15 percent of worldwide managed “flown.” In the event that the cardmember is not able to lending receivables. use the ticket and the Company, based on the facts and circumstances, credits the cardmember for the unused OTHER REPORTING MATTERS ticket, this business arrangement creates a potential ACCOUNTING DEVELOPMENTS exposure for the Company. This credit exposure is See the Recently Issued Accounting Standards section included in the maximum amount of undiscounted of Note 1 to the Consolidated Financial Statements. future payments disclosed in Note 11 to the Consolidated Financial Statements. Historically, this type of exposure has not generated any significant losses for the Company GLOSSARY OF SELECTED TERMINOLOGY because an airline operating under bankruptcy protection Asset securitizations — Asset securitization involves needs to continue accepting credit and charge cards and the transfer and sale of receivables or loans to a special honoring requests for credits and refunds in the ordinary purpose entity, which is a separate legal entity, created course of its business. Typically, as an airline’s financial for the securitization activity, typically a trust. The trust, [ 60 ] situation deteriorates, the Company delays payment to in turn, issues securities, commonly referred to as asset- the airline thereby increasing cash withheld to protect backed securities, that are secured by the transferred the Company in the event the airline is liquidated. The receivables or loans. The trust uses the proceeds from Company’s goal in these distressed situations is to hold the sale of such securities to pay the purchase price for sufficient cash over time to ensure that upon liquidation, the underlying receivables or loans. the cash held is equivalent to the credit exposure related to any unused tickets. Average discount rate — Represents discount revenue There has been some speculation that there will be from all card spending (proprietary and Global Network consolidation in the airline industry, both in the United Services) at merchants divided by all billed business States and internationally. While the Company would (proprietary and Global Network Services) generating not expect its merchant relationships to change in the discount revenue at such merchants. Only merchants event of consolidation, it is possible that the Company’s acquired by the Company are included in the computation. co-brand relationships might be affected if one of the Discount rates have been restated on a historical basis Company’s partners merged with an airline that had a from those previously disclosed, primarily to retain in different co-brand partner. the computation the Global Network Services partner As part of Delta Air Lines’ (Delta) decision to file portion of the discount revenue, as well as the Company’s for protection under Chapter 11 of the Bankruptcy portion of discount revenue. Code, the Company lent funds to Delta as part of Delta’s post-petition, debtor-in-possession financing Basic cards-in-force — Represents the number of cards under the Bankruptcy Code. At December 31, 2006, issued and outstanding to the primary account owners the remaining principal balance was $176 million and and does not include additional supplemental cards is scheduled to be repaid on a monthly basis through issued on such accounts. September 2007. This post-petition facility continues to be structured as an advance against the Company’s Billed business — Represents the dollar amount of obligations to purchase Delta SkyMiles rewards points charges on all American Express cards; also referred to under the Company’s co-brand and Membership as spend or charge volume. Proprietary billed business Rewards agreements. includes charges made on the Company’s proprietary 2006 fi nancial review american express company

cards-in-force, cash advances on proprietary cards and cardmember transactions. The discount fee generally is certain insurance fees charged on proprietary cards. deducted from the Company’s payment reimbursing the Non-proprietary billed business represents the charges merchant for cardmember purchases. through the Company’s global network on cards issued by the Company’s network partners. Interest-only strip — Interest-only strips are generated from U.S. Card Services’ securitization activity and Card acquisition — Primarily represents the issuance of are a form of retained interest held by the Company in new cards to either new or existing cardmembers through the securitization. This financial instrument represents marketing and promotion efforts. the present value of estimated future “excess spread” expected to be generated by the securitized assets over Cardmember — The individual holder of an issued the estimated life of those assets. Excess spread is the American Express branded charge or credit card. net positive cash flow from interest and fee collections allocated to the third-party investors’ interests in the Cardmember lending finance charge revenue, net of interest securitization after deducting the interest paid on the — Represents the net revenue earned on outstanding investor certificates, credit losses, contractual servicing cardmember loans. Cardmember lending finance charges fees, and other expenses. are assessed using the average daily balance method. They are recognized based upon the principal amount Merchant acquisition — Represents the signing of outstanding in accordance with the terms of the applicable merchants to accept American Express-branded charge account agreement until the outstanding balance is paid and credit cards. or written-off. Cardmember lending finance charges are presented net of the interest expense incurred by the Net card fees — Represents the card membership fees Company to finance lending receivables. earned during the period. These fees are recognized as revenue over the covered card membership period Cardmember loans — Represents the outstanding amount (typically one year), net of provision for projected [ 61 ] due from cardmembers for charges made on their refunds for cancellation of card membership. Beginning American Express credit cards, as well as any interest prospectively as of July 1, 2006, certain card acquisition- charges and card-related fees. Cardmember loans also related costs were reclassified from other expenses to a include balances with extended payment terms on certain reduction in net card fees over the membership period charge card products. covered by the card fee.

Cardmember receivables — Represents the outstanding Net loss ratio — Represents the ratio of write offs, net amount due from cardmembers for charges made on of recoveries on cardmember receivables expressed as a their American Express charge cards as well as any card- percentage of the total charge card volume. related fees. Net write-off rate — Represents the amount of loans Charge cards — Represents cards that carry no pre-set written off, net of recoveries as a percentage of the spending limits and are primarily designed as a method average loan balance during the period. of payment and not as a means of financing purchases. Cardmembers generally must pay the full amount Return on average equity — Computed on a trailing 12- billed each month. No finance charges are assessed on month basis using total shareholders’ equity as included charge cards. in the Consolidated Financial Statements prepared in accordance with U.S. GAAP. Credit cards — Represents cards that have a range of revolving payment terms, grace periods, and rate and Return on segment capital — Computed on a trailing 12- fee structures. month basis using segment income and equity capital allocated to segments based upon specific business Discount revenue — Represents revenue earned from operational needs, risk measures, and regulatory fees charged to merchants with whom the Company has capital requirements. entered into a card acceptance agreement for processing 2006 fi nancial review american express company

Securitization income, net — Net securitization income FORWARD-LOOKING STATEMENTS includes non-credit provision components of the This report includes forward-looking statements, net gains and charges from securitization activities; which are subject to risks and uncertainties. The words impairment charges, if any, of the related interest-only “believe,” “expect,” “anticipate,” “optimistic,” “intend,” strip; excess spread related to securitized cardmember “plan,” “aim,” “will,” “may,” “should,” “could,” “would,” loans; net finance charge revenue on retained interests “likely,” and similar expressions are intended to identify in securitized cardmember loans, and servicing income, forward-looking statements. Readers are cautioned net of related discounts or fees. Excess spread is the not to place undue reliance on these forward-looking net positive cash flow from interest and fee collections statements, which speak only as of the date on which allocated to the third-party investors’ interests in the they are made. The Company undertakes no obligation securitization after deducting the interest paid on the to update or revise any forward-looking statements. investor certificates, credit losses, contractual servicing Factors that could cause actual results to differ materially fees, and other expenses. Excess spread is recognized as from these forward-looking statements include, but are it is earned. not limited to, the following: the Company’s ability to meet its ROE target range of 33 to 36 percent on average Stored value and prepaid products — Include Travelers and over time, which will depend in part on factors such Cheques and other prepaid products such as gift cheques as the Company’s ability to generate sufficient revenue and cards as well as reloadable Travelers Cheque cards. growth and achieve sufficient margins, fluctuations These products are sold as safe and convenient alternatives in the capital required to support its businesses, the to currency for purchasing goods and services. mix of the Company’s financings, and fluctuations in the level of the Company’s shareholders’ equity due to Total cards-in-force — Represents the number of cards share repurchases, dividends, changes in accumulated that are issued and outstanding. Total consumer cards-in- other comprehensive income and accounting changes, force includes basic cards issued to the primary account among other things; the Company’s ability to grow its owner and any supplemental cards which represent business and meet or exceed its return on shareholders’ [ 62 ] additional cards issued on that account. Total small equity target by reinvesting approximately 35 percent of business and corporate cards-in-force include basic cards annually-generated capital, and returning approximately issued to employee cardmembers. Proprietary cards-in- 65 percent of such capital to shareholders, over time, force represent card products where the Company owns which will depend on the Company’s ability to the cardmember relationship including card issuance, manage its capital needs and the effect of business mix, billing and credit management and strategic plans acquisitions and rating agency requirements; consumer such as marketing, promotion, and development of and business spending on the Company’s credit and card products and offerings. Proprietary cards-in-force charge card products and Travelers Cheques and other include co-brand and affinity cards. For non-proprietary prepaid products and growth in card lending balances, cards-in-force (except for certain network partnership which depend in part on the ability to issue new and agreements), the Company maintains the responsibility enhanced card and prepaid products, services and to acquire and service merchants that accept the rewards programs, and increase revenues from such Company’s cards and the cardmember relationship is products, attract new cardmembers, reduce cardmember owned by the Company’s network partners that issue attrition, capture a greater share of existing cardmembers’ the cards. spending, and sustain premium discount rates on its card products in light of regulatory and market pressures, Travel sales — Represents the total dollar amount of increase merchant coverage, retain cardmembers after travel transaction volume for airline, hotel, car rental, low introductory lending rates have expired, and expand and other travel arrangements made for consumers and the Global Network Services business; the success of the corporate clients. The Company earns revenue on these Global Network Services business in partnering with transactions by charging a transaction or management banks in the United States, which will depend in part on fee. the extent to which such business further enhances the 2006 fi nancial review american express company

Company’s brand, allows the Company to leverage its contracts, decreased liquidity and higher borrowing significant processing scale, expands merchant coverage costs; risks associated with the Company’s agreements of the network, provides Global Network Services’ bank with Delta Air Lines to prepay a remaining balance of partners in the United States the benefits of greater $176 million for the future purchases of Delta SkyMiles cardmember loyalty and higher spend per customer, and rewards points; fluctuations in foreign currency merchant benefits such as greater transaction volume exchange rates; accuracy of estimates for the fair value and additional higher spending customers; fluctuations of the assets in the Company’s investment portfolio in interest rates, which impact the Company’s borrowing and, in particular, those investments that are not readily costs and return on lending products; the continuation marketable, including the valuation of the interest-only of favorable trends, including increased travel and strip relating to the Company’s lending securitizations; entertainment spending, and the overall level of consumer the potential negative effect on the Company’s businesses confidence; the costs and integration of acquisitions; and infrastructure, including information technology, of the success, timeliness and financial impact (including terrorist attacks, natural disasters or other catastrophic costs, cost savings and other benefits including increased events in the future; political or economic instability in revenues), and beneficial effect on the Company’s certain regions or countries, which could affect lending operating expense to revenue ratio, both in the short- and other commercial activities, among other businesses, term and over time, of reengineering initiatives being or restrictions on convertibility of certain currencies; implemented or considered by the Company, including changes in laws or government regulations; outcomes cost management, structural and strategic measures and costs associated with litigation and compliance and such as vendor, process, facilities and operations regulatory matters; and competitive pressures in all of consolidation, outsourcing (including, among others, the Company’s major businesses. See also “Risk Factors” technologies operations), relocating certain functions in the Company’s 2006 Form 10-K filed with the SEC. to lower-cost overseas locations, moving internal and external functions to the Internet to save costs, and planned staff reductions relating to certain of such [ 63 ] reengineering actions; the Company’s ability to reinvest the benefits arising from such reengineering actions in its businesses; the ability to control and manage operating, infrastructure, advertising and promotion expenses as business expands or changes, including the ability to accurately estimate the provision for the cost of the Membership Rewards program; the Company’s ability to manage credit risk related to consumer debt, business loans, merchant bankruptcies and other credit trends and the rate of bankruptcies, which can affect spending on card products, debt payments by individual and corporate customers and businesses that accept the Company’s card products and returns on the Company’s investment portfolios; bankruptcies, restructurings, consolidations or similar events affecting the airline or any other industry representing a significant portion of the Company’s billed business, including any potential negative effect on particular card products and services and billed business generally that could result from the actual or perceived weakness of key business partners in such industries; the triggering of obligations to make payments to certain co-brand partners, merchants, vendors and customers under contractual arrangements with such parties under certain circumstances; a downturn in the Company’s businesses and/or negative changes in the Company’s and its subsidiaries’ credit ratings, which could result in contingent payments under [ 64 ] THIS PAGE INTENTIONALLY LEF T BLANK management’s report on internal controls over fi nancial reporting american express company

MANAGEMENT’S REPORT ON Because of its inherent limitations, internal control INTERNAL CONTROL OVER over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of FINANCIAL REPORTING effectiveness to future periods are subject to the risk that The management of American Express Company (the controls may become inadequate because of changes in Company) is responsible for establishing and maintaining conditions, or that the degree of compliance with the adequate internal control over financial reporting. policies or procedures may deteriorate. The Company’s internal control over financial The Company’s management assessed the reporting is a process designed to provide reasonable effectiveness of the Company’s internal control over assurance regarding the reliability of financial reporting financial reporting as of December 31, 2006. In making and the preparation of financial statements for external this assessment, the Company’s management used purposes in accordance with generally accepted the criteria set forth by the Committee of Sponsoring accounting principles in the United States of America, Organizations of the Treadway Commission (COSO) in and includes those policies and procedures that: Internal Control — Integrated Framework. Based on management’s assessment and those Pertain to the maintenance of records that, in • criteria, we believe that, as of December 31, 2006, the reasonable detail, accurately and fairly reflect Company’s internal control over financial reporting the transactions and dispositions of the assets of is effective. the Company; PricewaterhouseCoopers LLP, the Company’s • Provide reasonable assurance that transactions independent registered public accounting firm, has are recorded as necessary to permit preparation of issued an audit report appearing on the following financial statements in accordance with generally page on our assessment of the effectiveness of the accepted accounting principles, and that receipts and Company’s internal control over financial reporting as expenditures of the Company are being made only of December 31, 2006. in accordance with authorizations of management and directors of the Company; and [ 65 ] • Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. report of independent registered public accounting fi rm

REPORT OF INDEPENDENT Internal control over financial reporting REGISTERED PUBLIC Also, in our opinion, management’s assessment, included in the accompanying Management’s Report on Internal ACCOUNTING FIRM Control over Financial Reporting, that the Company The Board of Directors and Shareholders of maintained effective internal control over financial American Express Company: reporting as of December 31, 2006 based on criteria We have completed integrated audits of American established in Internal Control — Integrated Framework Express Company’s 2006 and 2005 consolidated issued by the Committee of Sponsoring Organizations financial statements and of its internal control over of the Treadway Commission (COSO), is fairly financial reporting as of December 31, 2006 in stated, in all material respects, based on those criteria. accordance with the standards of the Public Company Furthermore, in our opinion, the Company maintained, Accounting Oversight Board (United States). Our in all material respects, effective internal control over opinions, based on our audits, are presented below. financial reporting as of December 31, 2006, based on criteria established in Internal Control — Integrated Consolidated financial statements Framework issued by the COSO. The Company’s In our opinion, the accompanying consolidated balance management is responsible for maintaining effective sheets and the related consolidated statements of income, internal control over financial reporting and for its of shareholders’ equity and of cash flows present fairly, in assessment of the effectiveness of internal control over all material respects, the financial position of American financial reporting. Our responsibility is to express Express Company and its subsidiaries (the “Company”) opinions on management’s assessment and on the at December 31, 2006 and 2005, and the results of their effectiveness of the Company’s internal control over operations and their cash flows for each of the two years financial reporting based on our audit. We conducted in the period ended December 31, 2006 in conformity our audit of internal control over financial reporting in with accounting principles generally accepted in the accordance with the standards of the Public Company Accounting Oversight Board (United States). Those [ 66 ] United States of America. These financial statements are the responsibility of the Company’s management. standards require that we plan and perform the audit Our responsibility is to express an opinion on these to obtain reasonable assurance about whether effective financial statements based on our audits. We conducted internal control over financial reporting was maintained our audits of these statements in accordance with the in all material respects. An audit of internal control over standards of the Public Company Accounting Oversight financial reporting includes obtaining an understanding Board (United States). Those standards require that of internal control over financial reporting, evaluating we plan and perform the audit to obtain reasonable management’s assessment, testing and evaluating the assurance about whether the financial statements are design and operating effectiveness of internal control, free of material misstatement. An audit of financial and performing such other procedures as we consider statements includes examining, on a test basis, evidence necessary in the circumstances. We believe that our supporting the amounts and disclosures in the financial audit provides a reasonable basis for our opinions. statements, assessing the accounting principles used A company’s internal control over financial and significant estimates made by management, and reporting is a process designed to provide reasonable evaluating the overall financial statement presentation. assurance regarding the reliability of financial We believe that our audits provide a reasonable basis for reporting and the preparation of financial statements our opinion. for external purposes in accordance with generally report of independent registered public accounting fi rm

accepted accounting principles. A company’s internal Because of its inherent limitations, internal control control over financial reporting includes those policies over financial reporting may not prevent or detect and procedures that (i) pertain to the maintenance of misstatements. Also, projections of any evaluation of records that, in reasonable detail, accurately and fairly effectiveness to future periods are subject to the risk that reflect the transactions and dispositions of the assets controls may become inadequate because of changes in of the company; (ii) provide reasonable assurance conditions, or that the degree of compliance with the that transactions are recorded as necessary to permit policies or procedures may deteriorate. preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable New York, New York assurance regarding prevention or timely detection of February 26, 2007 unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

[ 67 ] report of independent registered public accounting fi rm

REPORT OF INDEPENDENT In our opinion, the financial statements referred REGISTERED PUBLIC to above present fairly, in all material respects, the consolidated results of the Company’s operations and ACCOUNTING FIRM its cash flows for the year ended December 31, 2004, The Board of Directors and Shareholders of in conformity with U.S. generally accepted accounting American Express Company principles. We have audited the accompanying consolidated We also have audited, in accordance with the statements of income, shareholders’ equity, and cash standards of the Public Company Accounting Oversight flows of American Express Company for the year ended Board (United States), the effectiveness of American December 31, 2004. These financial statements are Express Company’s internal control over financial the responsibility of the Company’s management. Our reporting as of December 31, 2004, based on criteria responsibility is to express an opinion on these financial established in Internal Control — Integrated Framework statements based on our audit. issued by the Committee of Sponsoring Organizations We conducted our audit in accordance with the of the Treadway Commission and our report dated standards of the Public Company Accounting Oversight February 18, 2005 (not included herein) expressed an Board (United States). Those standards require that unqualified opinion thereon. we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as New York, New York evaluating the overall financial statement presentation. February 18, 2005, except for notes 2 and 19, as to which [ 68 ] We believe that our audit provides a reasonable basis for our opinion. the date is February 27, 2006 THIS PAGE INTENTIONALLY LEF T BLANK [ 69 ] consolidated statements of income american express company

Years Ended December 31, (Millions, except per share amounts) 2006 2005 2004 Net revenues Discount revenue $12,978 $ 11,489 $ 10,126 Cardmember lending finance charge revenue, net of interest 3,457 2,580 2,224 Net card fees 1,994 2,033 1,909 Travel commissions and fees 1,778 1,780 1,795 Other commissions and fees 2,555 2,375 2,200 Securitization income, net 1,489 1,260 1,132 Other investment and interest income, net of interest 1,078 1,055 997 Other 1,807 1,496 1,514 Total 27,136 24,068 21,897 Expenses Marketing, promotion, rewards and cardmember services 6,516 5,841 4,965 Human resources 5,065 4,829 4,538 Provisions for losses and benefits: Charge card 935 1,038 833 Cardmember lending 1,623 1,349 1,130 Investment certificates and other 529 386 301 Total 3,087 2,773 2,264 Professional services 2,710 2,308 2,141 Occupancy and equipment 1,491 1,428 1,353 Interest 1,236 920 814 Communications 449 457 474 Other 1,254 1,264 1,517 [ 70 ] Total 21,808 19,820 18,066 Pretax income from continuing operations 5,328 4,248 3,831 Income tax provision 1,599 1,027 1,145 Income from continuing operations 3,729 3,221 2,686 (Loss) Income from discontinued operations, net of tax (22) 513 830 Cumulative effect of accounting change related to discontinued operations, net of tax — — (71) Net income $ 3,707 $ 3,734 $ 3,445 Earnings per Common Share — Basic: Income from continuing operations $ 3.08 $ 2.61 $ 2.13 (Loss) Income from discontinued operations (0.02) 0.42 0.66 Cumulative effect of accounting change — — (0.05) Net income $ 3.06 $ 3.03 $ 2.74 Earnings per Common Share — Diluted: Income from continuing operations $ 3.01 $ 2.56 $ 2.09 (Loss) Income from discontinued operations (0.02) 0.41 0.65 Cumulative effect of accounting change — — (0.06) Net income $ 2.99 $ 2.97 $ 2.68 Average common shares outstanding for earnings per common share: Basic 1,212 1,233 1,259 Diluted 1,238 1,258 1,285

See Notes to Consolidated Financial Statements. consolidated balance sheets american express company

December 31, (Millions, except share data) 2006 2005 Assets Cash and cash equivalents (Note 1) $ 7,956 $ 7,126 Accounts receivable and accrued interest: Cardmember receivables, less reserves: 2006, $981; 2005, $942 36,386 33,216 Other receivables, less reserves: 2006, $42; 2005, $66 2,465 2,281 Investments (Note 3) 20,990 21,334 Loans: (Note 4) Cardmember lending, less reserves: 2006, $1,171; 2005, $996 42,135 32,108 International banking, less reserves: 2006, $64; 2005, $64 7,160 7,049 Other, less reserves: 2006, $34; 2005, $37 953 1,644 Land, buildings and equipment — at cost, less accumulated depreciation: 2006, $3,169; 2005, $2,868 2,448 2,230 Other assets 7,360 6,972 Total assets $127,853 $113,960 Liabilities and Shareholders’ Equity Customers’ deposits $ 24,656 $ 24,579 Travelers Cheques outstanding 7,215 7,175 Accounts payable 8,764 7,503 Investment certificate reserves 6,058 6,872 Short-term debt (Note 8) 15,162 15,633 Long-term debt (Note 8) 42,747 30,781 Other liabilities 12,740 10,868 Total liabilities 117,342 103,411 Shareholders’ Equity [ 71 ] Common shares, $.20 par value, authorized 3.6 billion shares; issued and outstanding 1,199 million shares in 2006 and 1,241 million shares in 2005 (Note 9) 240 248 Additional paid-in capital 9,638 8,652 Retained earnings 1,153 1,788 Accumulated other comprehensive (loss) income: Net unrealized securities gains, net of tax: 2006, $(61); 2005, $(88) 92 137 Net unrealized derivatives gains, net of tax: 2006, $(16); 2005, $(77) 27 143 Foreign currency translation adjustments, net of tax: 2006, $22; 2005, $34 (222) (400) Net unrealized pension and other postretirement benefit costs, net of tax: 2006, $210 (417) — Minimum pension liability, net of tax: 2005, $10 — (19) Total accumulated other comprehensive loss (520) (139) Total shareholders’ equity 10,511 10,549 Total liabilities and shareholders’ equity $127,853 $113,960

See Notes to Consolidated Financial Statements. consolidated statements of cash flows american express company

Years Ended December 31, (Millions) 2006 2005 2004 Cash Flows from Operating Activities Net income $ 3,707 $ 3,734 $ 3,445 Loss (Income) from discontinued operations, net of tax 22 (513) (830) Add: Cumulative effect of accounting change related to discontinued operations, net of tax — —71 Income from continuing operations 3,729 3,221 2,686 Adjustments to reconcile income from continuing operations to net cash provided by operating activities: Provisions for losses and benefits 3,102 2,816 2,399 Depreciation and amortization 645 602 600 Deferred taxes, acquisition costs and other (524) (226) 934 Stock-based compensation 298 256 183 Changes in operating assets and liabilities, net of effects of acquisitions and dispositions: Accounts receivable and accrued interest (309) (623) (716) Other operating assets (483) 526 302 Accounts payable and other liabilities 2,520 1,243 854 Increase (decrease) in Travelers Cheques outstanding 35 (111) 468 Net cash (used in) provided by operating activities attributable to discontinued operations (8) 341 1,433 Net cash provided by operating activities 9,005 8,045 9,143 Cash Flows from Investing Activities Sale of investments 5,964 3,795 4,884 Maturity and redemption of investments 13,224 7,545 3,348 Purchase of investments (18,457) (11,824) (10,623) Net increase in cardmember loans/receivables (15,096) (13,012) (8,706) [ 72 ] Proceeds from cardmember loan securitizations 3,491 5,386 3,888 Maturities of cardmember loan securitizations (4,435) (4,463) (3,000) Loan operations and principal collections for international banking, net (134) (399) (489) Purchase of land, buildings and equipment (861) (608) (616) Sale of land, buildings and equipment 95 248 252 Dispositions (acquisitions), net of cash sold/acquired 993 (136) 1,347 Cash spun-off to Ameriprise — (3,678) — Net cash used in investing activities attributable to discontinued operations (1) (113) (1,895) Net cash used in investing activities (15,217) (17,259) (11,610) Cash Flows from Financing Activities Net change in customers’ deposits (338) 5,331 (488) Sale of investment certificates 4,670 5,728 4,579 Redemption of investment certificates (5,554) (4,296) (3,561) Net decrease in debt with maturities of three months or less (3,017) (339) (3,453) Issuance of debt 29,545 14,389 19,791 Principal payments on debt (14,978) (14,426) (9,449) Issuance of American Express common shares and other 1,203 1,129 1,055 Repurchase of American Express common shares (4,093) (1,853) (3,578) Dividends paid (661) (597) (535) Net cash provided by financing activities attributable to discontinued operations 1 1,377 1,815 Net cash provided by financing activities 6,778 6,443 6,176 Effect of exchange rate changes on cash 264 (10) 42 Net increase (decrease) in cash and cash equivalents 830 (2,781) 3,751 Cash and cash equivalents at beginning of year includes cash of discontinued operations: 2005, $2,099; 2004, $2,189 7,126 9,907 6,156 Cash and cash equivalents at end of year includes cash of discontinued operations: 2004, $2,099 $ 7,956 $ 7,126 $ 9,907

See Notes to Consolidated Financial Statements. consolidated statements of shareholders’ equity american express company

Accumulated Additional Other Common Paid-in Comprehensive Retained Three Years Ended December 31, 2006 (Millions, except per share amounts) Total Shares Capital Income/(Loss) Earnings Balances at December 31, 2003 $15,323 $ 257 $6,081 $ 192 $ 8,793 Comprehensive income: Net income 3,445 3,445 Change in net unrealized securities gains (171) (171 ) Change in net unrealized derivatives losses 6 6 Derivatives losses reclassified to earnings 298 298 Foreign currency translation adjustments (66) (66 ) Minimum pension liability adjustment (1) (1 ) Total comprehensive income 3,511 Repurchase of common shares (3,578) (14) (338) (3,226) Other changes, primarily employee plans 1,320 7 1,573 (260) Cash dividends declared: Common, $0.44 per share (556) (556) Balances at December 31, 2004 16,020 250 7,316 258 8,196 Comprehensive income: Net income 3,734 3,734 Change in net unrealized securities gains (607) (607 ) Change in net unrealized derivatives gains (losses) 319 319 Derivatives gains reclassified to earnings (44) (44) Foreign currency translation adjustments (81) (81 ) Minimum pension liability adjustment (2) (2 ) Total comprehensive income 3,319 [ 73 ] Spin-off of Ameriprise (7,746) 18 (7,764 ) Repurchase of common shares (1,853) (7) (209) (1,637) Other changes, primarily employee plans 1,405 5 1,545 (145) Cash dividends declared: Common, $0.48 per share (596) (596 ) Balances at December 31, 2005 10,549 248 8,652 (139) 1,788 Comprehensive income: Net income 3,707 3,707 Change in net unrealized securities gains (45) (45) Change in net unrealized derivatives gains 42 42 Derivatives gains reclassified to earnings (158) (158) Foreign currency translation adjustments 178 178 Minimum pension liability adjustment (2) (2) Total comprehensive income 3,722 Adjustment to initially apply SFAS No. 158, net of tax (396) (396) Repurchase of common shares (4,093) (15) (534) (3,544) Acquisition of Harbor Payments, Inc. 147 147 Other changes, primarily employee plans 1,274 7 1,373 (106) Cash dividends declared: Common, $0.57 per share (692) (692) Balances at December 31, 2006 $10,511 $ 240 $9,638 $(520) $ 1,153

See Notes to Consolidated Financial Statements. notes to consolidated fi nancial statements american express company

CONSOLIDATED FINANCIAL gain of $109 million. $144 million ($131 million STATEMENTS after-tax) of the gain relates to the card and merchant- related activities sold and is reported as a reduction to other operating expenses in the Company’s continuing NOTE 1 SUMMARY OF SIGNIFICANT operations ($119 million in the International Card & ACCOUNTING POLICIES Global Commercial Services segment and $25 million in the Global Network & Merchant Services segment). THE COMPANY A $22 million after-tax loss related to the sale of the Company’s international banking activities to Bradesco American Express Company (the Company) is a leading is reported in discontinued operations for banking global payments, network, and travel company. The activities the Company exited in Brazil. Company offers a broad range of products and services The Company will continue to maintain its presence including charge and credit cards; stored value products in the card and merchant-related businesses within such as Travelers Cheques and gift cards; travel agency Malaysia, Indonesia, and Brazil through its Global services; travel and business expense management Network Services arrangements with acquirers. products and services; network services and merchant On September 30, 2005, the Company completed acquisition and merchant processing for the Company’s the spin-off of Ameriprise Financial, Inc. (Ameriprise), network partners and proprietary payments businesses; formerly known as American Express Financial lending products; point-of-sale and back-office products Corporation, the Company’s financial planning and and services for merchants; magazine publishing; financial services business. In addition, during the and international banking products. The Company’s third quarter of 2005, the Company completed certain various products and services are sold globally to diverse dispositions including the sale of its tax, accounting, and customer groups, including consumers, small businesses, consulting business, American Express Tax and Business mid-market companies, large corporations, and banking Services, Inc. (TBS). The operating results and cash institutions. These products and services are sold flows related to Ameriprise and certain dispositions [ 74 ] through various channels including direct mail, on-line (including TBS) have been reflected as discontinued applications, targeted sales-forces, and direct response operations in the Consolidated Financial Statements advertising. and the Notes to the Consolidated Financial Statements ACQUISITIONS AND DIVESTITURES have been adjusted to exclude discontinued operations Effective December 31, 2006, the Company acquired unless otherwise noted. Harbor Payments, Inc. (Harbor Payments) for PRINCIPLES OF CONSOLIDATION approximately $150 million which was paid primarily in The Consolidated Financial Statements of the Company the Company’s common stock. Harbor Payments is a are prepared in conformity with U.S. generally accepted technology provider that specializes in electronic invoice accounting principles (GAAP). All significant and payment capabilities. The acquisition is reflected intercompany transactions are eliminated. in the International Card & Global Commercial The Company consolidates all non-variable interest Services segment. entities in which the Company holds a greater than 50 During the third quarter of 2006, the Company percent voting interest. Entities in which the Company’s completed the sale of its card and merchant-related voting interest exceeds 20 percent but is less than 50 activities in Malaysia to Maybank, and its card and percent are accounted for under the equity method. merchant-related activities in Indonesia to Bank All other investments are accounted for under the cost Danamon for combined proceeds of $94 million. The method unless the Company determines that it exercises transactions generated a gain of $33 million ($24 significant influence over an entity by means other than million after-tax), and are reported as a reduction to voting rights, in which case the entity is accounted for other expenses in the Company’s continuing operations. under the equity method. The gain is reported within the International Card & The Company also consolidates all Variable Interest Global Commercial Services segment. Entities (VIEs) for which it is considered to be the On June 30, 2006, the Company completed the primary beneficiary pursuant to Financial Accounting sale of its card and merchant-related activities and Standards Board (FASB) Interpretation No. 46 (revised international banking activities in Brazil to Banco December 2003), “Consolidation of Variable Interest Bradesco S.A. (Bradesco), for approximately $470 Entities” (FIN 46(R)). The determination of whether an million. The transaction generated a net after-tax notes to consolidated fi nancial statements american express company

entity is a VIE is based on the amount and characteristics NET REVENUES of the entity’s equity. In general, FIN 46(R) requires an The Company generates revenue from a variety of sources enterprise to consolidate a VIE when it has a variable including global payments, such as charge and credit interest and it is deemed to be the primary beneficiary cards, travel services and investments funded by the sale (meaning that it will absorb a majority of the VIE’s of stored value products, such as Travelers Cheques. expected losses or receive a majority of the VIE’s expected residual return). Discount revenue Qualifying Special Purpose Entities (QSPEs) under The Company earns discount revenue from fees charged Statement of Financial Accounting Standards (SFAS) to merchants with which the Company has entered into No. 140, “Accounting for Transfers and Servicing of card acceptance agreements for processing cardmember Financial Assets and Extinguishments of Liabilities” transactions. The discount generally is deducted from (SFAS No. 140), are not consolidated. The Company the payment to the merchant and recorded as discount utilizes QSPEs in connection with cardmember lending revenue at the time the charge is captured. securitizations within the U.S. Card Services segment. Certain reclassifications of prior period amounts Cardmember lending finance charge revenue, net of have been made to conform to the current presentation, interest including revenue and expense reclassifications contained Cardmember lending finance charges are assessed using in the current report on Form 8-K dated April 5, 2006. the average daily balance method for receivables owned. In addition, beginning prospectively as of July 1, 2006, These amounts are recognized based upon the principal certain card acquisition-related costs were reclassified amount outstanding in accordance with the terms of from other expenses to a reduction in net card fees. the applicable account agreement until the outstanding balance is paid or written-off. Cardmember lending FOREIGN CURRENCY finance charge revenue is presented net of interest Assets and liabilities denominated in foreign currencies expense of $1,222 million, $868 million, and $571 are translated into U.S. dollars based upon exchange million for 2006, 2005, and 2004, respectively. rates prevailing at the end of each year. The resulting [ 75 ] translation adjustments, along with any related qualifying Net card fees hedge and tax effects, are included in accumulated Card fees are deferred and recognized as revenue other comprehensive (loss) income, a component of on a straight-line basis over the twelve-month card shareholders’ equity. Revenues and expenses are translated membership period, net of deferred direct card at the average month-end exchange rates during the acquisition costs and a reserve for projected membership year. Gains and losses related to non-functional currency cancellations. The carrying amount of deferred card transactions, including non-U.S. operations where the fees, net of direct acquisition costs and the reserves for functional currency is the U.S. dollar, are reported net membership cancellations, is included in other liabilities in other revenue or other expense, depending on the on the Consolidated Balance Sheet. The amounts of nature of the activity, in the Company’s Consolidated each as of December 31 were as follows: Statements of Income. Net foreign currency transaction gains (losses) amounted to approximately $9 million, $5 (Millions) 2006 2005 million, and $(113) million in 2006, 2005, and 2004, Deferred card fees $1,252 $1,176 respectively. Deferred direct acquisition costs (145) (123) Reserves for membership cancellations (120) (124) AMOUNTS BASED ON ESTIMATES AND ASSUMPTIONS Deferred card fees, net of direct acquisition Accounting estimates are an integral part of the costs and reserves $ 987 $ 929 Consolidated Financial Statements. These estimates are based, in part, on management’s assumptions concerning Travel commissions and fees future events. Among the more significant assumptions are The Company earns customer revenue by charging those that relate to reserves for cardmember losses, asset a transaction or management fee for airline or other securitizations, and Membership Rewards, as discussed transactions. Customer-related fees and other revenues below. These accounting estimates reflect the best are recognized at the time a client books travel judgment of management, but actual results could differ. arrangements. Travel suppliers pay commissions on airline tickets issued and on sales and transaction volumes, based on contractual agreements. These notes to consolidated fi nancial statements american express company

revenues are recognized at the time a ticket is purchased. balances will be paid in full, all cash received is applied Other travel suppliers that pay commissions on hotels to reduce the carrying value of the loan or advance. Fees and car rentals generally are not under firm contractual are deferred and amortized over the life of the loan or agreements, and, therefore, revenue is not recognized advance using the effective interest method. until cash is received. Other investment income and interest income is presented net of interest expense of $420 million, Other commissions and fees $321 million, and $220 million for 2006, 2005, and Other commissions and fees include foreign exchange 2004, respectively, related primarily to the Company’s conversion fees and other card-related assessments, international banking operations. which are recognized primarily in the period in which they are charged to the cardmember. Fees related to Contra-revenue the Company’s Membership Rewards program are The Company regularly makes payments to its customers deferred and recognized over the period covered by the through a variety of arrangements, including both cash fee and included in deferred card fees, net of deferred and non-cash awards to cardmembers in conjunction acquisition costs. with loyalty programs such as Membership Rewards, as well as through other contractual arrangements with Securitization income, net merchants, Corporate Card Clients and other customers. Net securitization income includes non-credit provision Cash payments to customers are classified as contra- components of the net gains and charges from revenue unless management can identify a specifically securitization activities; impairment charges, if any, identifiable benefit (e.g., goods or services) received by the of the related interest-only strip; excess spread related Company in consideration for that payment. If no such to securitized cardmember loans; net finance charge benefit is identified, then the entire payment is classified revenue on retained interests in securitized cardmember as contra-revenue. If such a benefit is identified, then loans; and servicing income, net of related discounts or the payment is classified as expense up to the estimated fair value of the benefit. Non-cash payments, such as [ 76 ] fees. Excess spread is the net positive cash flow from interest and fee collections allocated to the third-party Membership Rewards points earned and redeemed by investors’ interests in the securitization after deducting cardmembers and those stored value products provided the interest paid on the investor certificates, credit losses, to cardmembers that cannot be redeemed for cash, are contractual servicing fees and other expenses. Excess classified as expenses along with cash payments to co- spread is recognized as it is earned. brand partners for the participation of the Company’s cardmembers in the partners’ reward programs. Other investment and interest income, net of interest Investment and interest income for the Company’s Other revenue performing fixed-income securities is accrued as earned Other revenue includes insurance premiums earned using the effective interest method, which adjusts the from cardmember travel and other insurance programs, yield for security premiums and discounts, fees and publishing revenues, and other miscellaneous revenue other payments, so that the related security recognizes and fees. a constant rate of return on the outstanding balance throughout its term. The Company also accrues EXPENSES investment income using the straight-line method for Stock-based compensation a certain investment portfolio. The difference between Effective July 1, 2005, the Company adopted SFAS No. the straight-line and the effective interest method for 123 (revised 2004), “Share-Based Payment” (SFAS No. this portfolio was not significant. 123(R)), using the modified prospective application. Interest income for the Company’s international The adoption of SFAS No. 123(R) requires entities to banking and other loans is accrued on unpaid principal measure and recognize the cost of employee services balances using the effective interest method unless received in exchange for an award of equity instruments collection of interest is in doubt. In those cases, interest based on the grant-date fair value of the award. The income is recognized only to the extent it is received in adoption of SFAS No. 123(R) did not materially impact cash. Generally, the accrual of interest on these loans and the Company’s Consolidated Financial Statements advances is discontinued if a loan is 90 days delinquent since the Company has been expensing share-based (depending on loan type) or when an impairment is awards granted after January 1, 2003, under the determined. When management doubts outstanding provisions of SFAS No. 123, “Accounting for Stock- notes to consolidated fi nancial statements american express company

Based Compensation” (SFAS No. 123). The Company BALANCE SHEET recognizes the cost of these awards on a straight-line Cash and cash equivalents basis over their vesting periods. The Company has defined cash equivalents to include time The following table illustrates the effect on deposits and other highly liquid investments with original net income and earnings per common share (EPS) maturities of 90 days or less. Restricted cash totaling $425 assuming the Company had followed the fair value million and $451 million at December 31, 2006 and 2005, recognition provisions of SFAS No. 123(R) for all respectively, is classified in other assets in cases where cash outstanding and unvested stock options and other cannot be utilized for operations. stock-based compensation for the two years ended December 31, 2005. Pro forma disclosures are not Accounts receivable required for periods after the adoption of SFAS No. Cardmember receivables 123(R): Cardmember receivables represent amounts due from

(Millions, except per share amounts) 2005 2004 charge card customers. These receivables are recorded Net income as reported $3,734 $3,445 at the time a cardmember enters into a point-of-sale Add: Stock-based employee compensation transaction with a merchant. Cardmember receivable expense included in reported net balances are presented on the Consolidated Balance income, net of related tax effects(a) 208 185 Sheets net of reserves for losses, discussed below, and Deduct: Total stock-based employee includes principal and any related accrued fees. compensation expense determined under fair value based method, net of Reserves for losses — cardmember receivables related tax effects(b) (217) (369) Reserves for losses relating to cardmember receivables Pro forma net income $3,725 $3,261 represent management’s estimate of the losses inherent Basic EPS: in the Company’s outstanding portfolio of receivables. As reported $ 3.03 $ 2.74 Management’s evaluation process requires certain Pro forma $ 3.02 $ 2.59 estimates and judgments. Reserves for these losses [ 77 ] Diluted EPS: are primarily based upon models that analyze specific As reported $ 2.97 $ 2.68 portfolio statistics and reflect, to a lesser extent, Pro forma $ 2.96 $ 2.54 management’s judgment regarding overall reserve adequacy. The analytic models take into account several (a) Includes $27 million and $28 million for 2005 and 2004, respectively, related to Ameriprise. factors, including average write-off rates for various (b) Includes $(28) million and $(67) million for 2005 and 2004, stages of receivable aging (i.e., current, 30 days, 60 days, respectively, related to Ameriprise. 90 days) over a 24-month period and average bankruptcy and recovery rates. Management considers whether to Marketing, promotion, rewards and adjust the analytic models based on other factors, such cardmember services as the level of coverage of past-due accounts, as well as These expenses include the costs of rewards programs leading economic and market indicators, such as the (including Membership Rewards, which is discussed unemployment rate, the consumer confidence index, the further in the other liabilities section below), protection purchasing manager’s index, bankruptcy filings and the plans and complimentary services provided to legal and regulatory environment. cardmembers, and advertising costs, which are expensed Cardmember receivable balances are written off in the year in which the advertising first takes place. when management deems amounts to be uncollectible Cash payments to customers for which the Company and is generally determined by the number of days past does not receive a specific identifiable benefit (e.g., due. In general, receivables in bankruptcy or owed by cash-back payments to cardmembers) are classified as a deceased individuals are written off upon notification, reduction to revenue. while other accounts are written off when 360 days past due. To the extent historical credit experience is not Interest indicative of future performance, actual loss experience This expense includes interest incurred primarily to fund could differ significantly from management’s judgments charge card product receivables and general corporate and expectations, resulting in either higher or lower purposes. future provisions for losses, as applicable. notes to consolidated fi nancial statements american express company

Investments Reserve for losses — cardmember lending Investments include debt and equity securities and are The Company’s methodology for reserving for losses classified within both the available-for-sale and trading relating to cardmember loans is consistent with reserving categories. for losses relating to cardmember receivables, with the Available-for-sale investment securities are carried exception that cardmember loan balances are written off at fair value on the Consolidated Balance Sheets with when 180 days past due. unrealized gains (losses) recorded in accumulated International banking other comprehensive (loss) income, net of income tax International banking loans include amounts due from provisions (benefits). Gains and losses are recognized in consumers, high net worth individuals, banks and results of operations upon disposition of the securities. other institutions, and corporations. Consumer and Gains and losses on these investments are recognized private banking loans include unsecured lines of credit, using the specific identification method on a trade date installment loans, mortgage loans, and auto loans to basis. In addition, realized losses are recognized when retail customers as well as secured lending to high net management determines that a decline in value is other- worth individuals. Loans to banks and other institutions than-temporary, which requires judgment regarding represent trade-related financing and other extensions the amount and timing of recovery. Indicators of other- of credit. Corporate loans represent commercial and than-temporary impairment for debt securities include industrial loans as well as mortgage and real estate loans issuer downgrade, default, or bankruptcy. The Company to corporate customers. International banking loans also considers the extent to which cost exceeds fair value, are stated at the principal amount outstanding net of the duration and size of that gap, and management’s unearned income and are presented on the Consolidated judgment about the issuer’s current and prospective Balance Sheets net of reserves for losses, which are financial condition. discussed below. Trading investment securities are carried at fair value on the Consolidated Balance Sheets, and changes are Reserve for losses — international banking recorded in results of operations. For smaller-balance consumer loans, management [ 78 ] The Company uses quoted market prices to determine establishes reserves for losses inherent in the portfolio. fair value. If quoted market prices are not available, the Generally, these loans are written off in full when an Company estimates fair value using prices of similar impairment is determined based upon bankruptcy or assets or the present value of estimated expected future other customer specific circumstances, or when the loan cash flows when similar assets do not exist. becomes 120 or 180 days past due, depending on loan type. Loans, other than smaller-balance consumer loans, Loans are placed on nonperforming status and considered Cardmember lending impaired when payments of principal or interest are Cardmember loans represent amounts due from lending 90 days past due or if, in management’s opinion, it is product customers. These loans are recorded at the time probable that the Company will be unable to collect a cardmember enters into a point-of-sale transaction all amounts due according to the contractual terms of with a merchant or when a charge card customer enters the loan agreement. Any interest accrued on impaired into an extended payment arrangement. Cardmember loans is reversed and charged against current earnings, loans are presented on the Consolidated Balance Sheets and interest is thereafter included in earnings only to the net of reserves for cardmember losses, discussed below, extent actually received in cash. When there is doubt and include accrued interest receivable and fees as of regarding the ultimate collectibility of principal, all cash the balance sheet date. Cardmember loans also include receipts are thereafter applied to reduce the recorded balances with extended payment terms on certain charge investment in the impaired loan. In such cases, amounts card products. The Company’s policy is to cease accruing received after the recorded investment in the impaired for interest receivable once a cardmember loan is more loan has been completely drawn down are recognized than 180 days past due. as interest income. The allowance for impaired loans is measured as the excess of the loan’s recorded investment over either the present value of expected principal and interest payments discounted at the loan’s effective interest rate or, if more practical for collateral-dependent loans, the fair value of collateral. For floating rate impaired loans, the effective interest rate is fixed at the notes to consolidated fi nancial statements american express company

rate in effect at the date the impairment criteria are met. The Company maintains operating leases Impaired loans are returned to accrual status when all worldwide for facilities and equipment. Rent expense remaining contractual principal and interest amounts for facility leases is recognized ratably over the lease are reasonably assured of repayment. term, and is calculated to include adjustments for rent concessions, all known rent escalations, and leasehold Other loans improvement allowances. Other loans primarily represent installment loans, revolving credit due from U.S. Card Services’ Software development costs customers, and loans and interest-bearing advances to The Company capitalizes certain costs associated with airline partners. the acquisition or development of internal-use software. Once the software is ready for its intended use, these Asset securitizations costs are amortized on a straight-line basis over the The Company periodically securitizes cardmember software’s estimated useful life of five years. receivables and loans by transferring those assets to a trust, which then issues securities to third-party investors Goodwill and other intangible assets that are collateralized by the transferred assets. The Goodwill Company accounts for its transfers of financial assets in Goodwill represents the excess of acquisition cost accordance with SFAS No. 140. of an acquired company over the fair value of assets In order for a securitization of financial assets to be acquired and liabilities assumed. Goodwill is included accounted for as a sale, the transferor must surrender in other assets on the Consolidated Balance Sheets. control over those financial assets to the extent that the The Company evaluates goodwill for impairment transferor receives consideration other than beneficial annually and whenever events and circumstances make interests in the transferred assets. Cardmember loans it possible that impairment may have occurred, such as a are transferred to a QSPE, and such transactions are significant adverse change in the business environment structured to meet the sales criteria. Accordingly, when or a decision to sell or dispose of a reporting unit. In loans are sold through securitizations, the Company determining whether impairment has occurred, the [ 79 ] removes the loans from its Consolidated Balance Sheets Company generally uses a comparative market multiples and recognizes both a gain on sale and the retained approach for calculating fair value. interests in the securitization. Intangible assets In contrast, cardmember receivables are transferred Intangible assets, primarily customer relationships, are to a special purpose entity, a trust that does not meet amortized over their estimated useful lives on a straight- the requirements for treatment as a qualifying sale. line basis, unless they are deemed to have indefinite Therefore, securitizations of cardmember receivables are useful lives. Intangible assets are included in other assets accounted for as secured borrowings. on the Consolidated Balance Sheets. The Company reviews intangible assets for impairment quarterly. In Land, buildings and equipment addition, the Company fully evaluates intangible assets Land, buildings and equipment annually and whenever events and circumstances make Buildings and equipment, including leasehold it possible that impairment may have occurred, such as a improvements, are carried at cost less accumulated significant adverse change in the business environment depreciation. Costs incurred during construction, as well or a decision to sell or dispose of a reporting unit. For as related interest, are capitalized and are depreciated intangible assets subject to amortization, impairment is once an asset is placed in service. Depreciation is recognized if the carrying amount is not recoverable and generally computed using the straight-line method exceeds the asset’s fair value. over the estimated useful lives of assets, which range from three to eight years for equipment. Buildings are Other liabilities depreciated based upon their estimated useful life at Membership Rewards the acquisition date, which generally ranges from 40 to The Company’s Membership Rewards program allows 60 years. enrolled cardmembers to earn points that can be Leasehold improvements are depreciated using the redeemed for a broad range of rewards, including travel, straight-line method over the lesser of the remaining entertainment, retail certificates, and merchandise. The term of the leased facility or the economic life of the Company establishes balance sheet reserves to cover the improvement, which ranges from five to ten years. cost of future reward redemptions for points earned to notes to consolidated fi nancial statements american express company

date. The reserve for Membership Rewards is estimated asset or liability, or a forecasted transaction. For derivative using models that analyze historical redemption statistics financial instruments that qualify as cash flow hedges, and reflect, to a lesser extent, management’s judgment the effective portions of the gain or loss on the derivatives regarding overall adequacy. The provision for the cost of are recorded in accumulated other comprehensive (loss) Membership Rewards, which is included in marketing, income and reclassified into earnings when the hedged promotion, rewards and cardmember services, is based item or transactions impact earnings. The amount that is upon points earned that are expected to ultimately be reclassified into earnings is presented in the Consolidated redeemed by cardmembers and the current weighted- Statements of Income with the hedged instrument or average cost per point of redemption. The estimated points transaction impact, generally, in net other investment to be redeemed are based on many factors, including and interest income or interest expense. Any ineffective past redemption behavior of cardmembers, card product portion of the gain or loss, as determined by the accounting type, year of program enrollment, and card spend level. requirements, is reported as a component of other revenue. The weighted-average cost per point is affected by the If a hedge is de-designated or terminated prior to maturity, mix of rewards redeemed. The Company continually the amount previously recorded in accumulated other evaluates its reserve methodology and assumptions based comprehensive (loss) income is recognized into earnings on developments in redemption patterns, cost per point over the period that the hedged item impacts earnings. If redeemed, and other factors. During 2006, management a hedge relationship is discontinued because it is probable revised the ultimate redemption rate assumption to that the forecasted transaction will not occur according reflect program redemption statistics of cardmembers to the original strategy, any related amounts previously who left the program in the previous five years, rather recorded in accumulated other comprehensive (loss) than redemption statistics of the entire population of income are recognized into earnings immediately. cardmembers who left the program since inception. Fair value hedges Management believes that using recent redemption A fair value hedge is a derivative designated to hedge the statistics is a better indicator of future redemption exposure of future changes in the fair value of an asset or behavior of active cardmembers. [ 80 ] liability, or an identified portion thereof that is attributable The liability for Membership Rewards was to a particular risk. For derivative financial instruments approximately $3.8 billion and $3.1 billion at that qualify as fair value hedges, changes in the fair value December 31, 2006 and 2005, respectively, and is of the derivatives, as well as of the corresponding hedged included in other liabilities. assets, liabilities or firm commitments, are recorded in earnings as a component of other revenue. If a fair value Derivative financial instruments and hedging activities hedge is de-designated or terminated prior to maturity, SFAS No. 133, “Accounting for Derivative Instruments previous adjustments to the carrying value of the hedged and Hedging Activities” (SFAS No. 133), as amended, item are recognized into earnings to match the earnings requires recognition of all derivatives on balance sheet pattern of the hedged item. at fair value as either assets or liabilities. The fair value of the Company’s derivative financial instruments are Net investment hedges in foreign operations determined using either market quotes or valuation A net investment hedge in foreign operations is a derivative models that are based upon the net present value of used to hedge future changes in currency exposure of estimated future cash flows and incorporate current a net investment in a foreign operation. For derivative market data inputs. The Company reports its derivative financial instruments that qualify as net investment assets and liabilities in other assets and other liabilities, hedges in foreign operations, the effective portions of respectively, on a net by counterparty basis where the change in fair value of the derivatives are recorded in management believes it has the legal right of offset under accumulated other comprehensive (loss) income as part enforceable netting arrangements. The accounting for of the cumulative translation adjustment. Any ineffective the change in the fair value of a derivative financial portions of net investment hedges are recognized in other instrument depends on its intended use and the resulting revenue during the period of change. hedge designation, if any, as discussed below. Non-designated derivatives and trading activities Cash flow hedges For derivative financial instruments that do not qualify A cash flow hedge is a derivative designated to hedge the for hedge accounting, are not designated as hedges, or exposure of variable future cash flows that is attributable consist of customer or proprietary trading activities, to a particular risk associated with an existing recognized changes in fair value are reported in current period earnings generally as a component of other revenue, notes to consolidated fi nancial statements american express company

other operating expenses or interest expense, depending examination vary by jurisdiction. The examination on the type of derivative instrument and the nature of currently being conducted by the IRS covers 1997-2004. the transaction. Due to the inherent complexities of the business and given the Company is subject to taxation in a substantial Derivative financial instruments that qualify for hedge number of jurisdictions, the Company is required to accounting make certain judgments and estimates. The Company Derivative financial instruments that are entered into routinely assesses the likelihood of additional assessments for hedging purposes are designated as such when the in each of the taxing jurisdictions, and has established Company enters into the contract. For all derivative tax reserves that management believes to be adequate. financial instruments that are designated for hedging Once established, reserves are adjusted if more accurate activities, the Company formally documents all of the information is available or a change in circumstance, or hedging relationships between the hedge instruments an event occurs necessitating a change to the reserves. and the hedged items at the inception of the relationships. Management also formally documents its risk Restricted net assets of subsidiaries management objectives and strategies for entering into the hedge transactions. The Company formally assesses, Certain of the Company’s subsidiaries are subject to at inception and on a quarterly basis, whether derivatives restrictions on the transfer of net assets under debt designated as hedges are highly effective in offsetting agreements and regulatory requirements. These the fair value or cash flows of hedged items. These restrictions have not had any effect on the Company’s assessments usually are made through the application shareholder dividend policy and management does of statistical measures. The Company only applies the not anticipate any impact in the future. Procedures “short cut” method of hedge accounting in very limited exist to transfer net assets between the Company and cases when this method’s requirements are strictly met. its subsidiaries, while ensuring compliance with the Beginning in 2006, the Company discontinued using various contractual and regulatory constraints. At the “short cut” method on any new transactions. December 31, 2006, the aggregate amount of net assets of subsidiaries that may not be transferred to American In accordance with its risk management policies, the [ 81 ] Company generally structures its hedges with very similar Express’ Parent Company (Parent Company) was terms to the hedged items; therefore, when applying approximately $6 billion. the accounting requirements, the Company generally recognizes insignificant amounts of ineffectiveness RECENTLY ISSUED ACCOUNTING STANDARDS through earnings. If it is determined that a derivative SFAS No. 158, “Employers’ Accounting for Defined is not highly effective as a hedge, the Company will Benefit Pension and Other Postretirement Plans – an discontinue the application of hedge accounting. amendment of the FASB Statements No. 87, 88, 106, and 132(R)” (SFAS No. 158), requires the funded status Income taxes of pension and other postretirement plans to be recorded The Company, its 80 percent or more owned U.S. on the balance sheet as of December 31, 2006, with a subsidiaries, and certain non-U.S. subsidiaries file corresponding offset, net of tax effects, recorded in a consolidated federal income tax return. Deferred accumulated other comprehensive income (loss) within tax assets and liabilities are determined based on the shareholders’ equity. Under SFAS No. 158, all previously differences between the financial statement and tax unrecognized gains and losses, prior service costs and bases of assets and liabilities using the enacted tax credits, and remaining transition amounts under SFAS rates expected to be in effect for the years in which the Nos. 87 and 106 will be recognized in accumulated differences are expected to reverse. A valuation allowance other comprehensive income (loss), net of tax effects, is established when management determines that it is which is a component of shareholders’ equity and does more likely than not the benefit of deferred tax assets not result in an immediate charge to earnings. Those will not be realized. The Company does not provide for previously unrecognized amounts will be amortized as federal income taxes on foreign earnings intended to be a component of net periodic pension expense in future permanently reinvested outside the United States. periods. Upon implementation of SFAS No. 158, The Company is under continuous examination by the Company recorded additional liabilities of $179 the Internal Revenue Service (IRS) and tax authorities million in other liabilities, a reduction of assets of $416 in other countries and states in which the Company has million in other assets and a $396 million charge to significant business operations. The tax years under shareholders’ equity, net of a deferred income tax benefit notes to consolidated fi nancial statements american express company

of $199 million, related to its defined benefit and other Emerging Issues Task Force (EITF) No. 06-3, postretirement benefit plans. The Company currently “How Taxes Collected from Customers and Remitted uses a September 30 measurement date. Effective for to Governmental Authorities Should be Presented years ending after December 15, 2008, the measurement in the Income Statement (That is, Gross versus Net date for the benefit obligation and plan assets is required Presentation)” allows for a policy decision to present to be the Company’s fiscal year end. certain taxes collected from customers and remitted SFAS No. 156, “Accounting for Servicing of to taxing authorities as either gross or net within the Financial Assets – an amendment of FASB Statement income statement. For any such taxes that are reported No. 140” (SFAS No. 156), requires all separately on a gross basis, the amounts should be disclosed if recognized servicing assets and servicing liabilities significant. The guidance will not be effective until to be initially measured at fair value, if practicable. January 1, 2007, and will not result in any impact to the Subsequent accounting may be elected under either the Company’s Consolidated Financial Statements. amortization method, which systematically amortizes The FASB has recently issued the following accounting the servicing asset or liability to income, or the fair value standards, which are effective after December 31, 2006. measurement method, which remeasures the servicing The Company is currently evaluating the impact of these asset or liability at fair value with the changes recorded recently issued accounting standards on the Company’s in income. Election of the fair value method is made Consolidated Financial Statements. on a class-by-class basis for each separately recognized • FASB Interpretation No. 48, “Accounting for servicing asset and liability. SFAS No. 156 applies Uncertainty in Income Taxes – an interpretation to all financial instruments acquired or issued after of FASB Statement No. 109” (FIN 48), is an December 31, 2006. The Company does not expect any interpretation that clarifies the accounting for tax impact to its Consolidated Financial Statements. positions accounted for under FASB Statement SFAS No. 155, “Accounting for Certain Hybrid No. 109, “Accounting for Income Taxes.” FIN 48 Financial Instruments – an amendment of FASB prescribes a recognition threshold and measurement Statements No. 133 and 140” (SFAS No. 155), ends [ 82 ] attribute for the financial statement recognition and the temporary exemption of beneficial interests in measurement of benefits associated with tax positions securitized assets from the bifurcation requirements of taken or expected to be taken in a tax return. For SFAS No. 133. SFAS No. 155 permits fair value re- any amount of those benefits to be recognized, a measurement of any hybrid financial instrument that tax position must be more-likely-than-not to be contains an embedded derivative that otherwise would sustained upon examination by taxing authorities require bifurcation. This will primarily affect the based on the technical merits of the position. Company’s accounting for its interest-only strips, where The amount of benefit recognized is based on the the changes in fair value are currently recorded in other Company’s assertion of the most likely outcome comprehensive (loss) income in shareholders’ equity. resulting from an examination. FIN 48 is applicable After adoption of SFAS No. 155 on January 1, 2007, to all tax positions as of January 1, 2007. The initial once the interest-only strip is subject to a re-measurement effect of adoption will be reflected in first quarter of event, the Company will elect fair value measurement 2007 as a cumulative effect adjustment to income for the instrument, which will require changes in its fair taxes payable (in other liabilities) and retained value to be recognized in earnings rather than in other earnings. Subsequent to the adoption of FIN 48, all comprehensive (loss) income from the re-measurement increases and decreases in the Company’s estimated date forward. SFAS No. 155 applies to all financial recognizable tax benefits will be recorded as a instruments acquired or issued after December 31, benefit/provision for income taxes. 2006. The adoption of this new standard will result in an increase in first quarter net income by approximately • SFAS No. 157, “Fair Value Measurements” (SFAS $50 million ($80 million pretax) for amounts previously No. 157), establishes a framework for measuring recognized in other comphensive (loss) income due to fair value and applies broadly to financial and a re-measurement of the interest-only strip asset. In non-financial assets and liabilities measured at addition, any future changes in fair value of the interest- fair value under existing authoritative accounting only strip in the first quarter of 2007 subsequent to pronouncements. SFAS No. 157 establishes a fair the re-measurement date and all future periods will be value hierarchy that prioritizes inputs to valuation reflected in the Company’s net income. techniques used for financial instruments without active markets and for non-financial assets and notes to consolidated fi nancial statements american express company

liabilities. SFAS No. 157 also expands disclosure Also during 2005, the Company completed certain requirements regarding methods used to measure dispositions including the sale of TBS for cash proceeds fair value and the effects on earnings. SFAS No. of approximately $190 million. These dispositions 157 is effective as of the first quarter of 2008. resulted in a net after-tax gain of approximately $63 million during the third quarter of 2005. • SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an The operating results and cash flows of discontinued amendment of FASB Statement No. 115” (SFAS operations are presented separately in the Company’s No. 159), provides companies with an option to Consolidated Financial Statements and the Notes to the report selected financial assets and liabilities at Consolidated Financial Statements have been adjusted fair value. SFAS No. 159 is effective as of the first to exclude discontinued operations unless otherwise quarter of 2008. noted. Summary operating results of the discontinued operations for the years ended December 31 were:

NOTE 2 DISCONTINUED OPERATIONS (Millions) 2006 2005 2004 Net revenues $9$5,813 $7,161 On June 30, 2006, the Company completed the sale of Pretax (loss) income from its card and merchant-related activities and international discontinued operations $(68) $ 690 $1,120 banking activities in Brazil for approximately $470 Income tax (benefit) provision (46) 177 290 million. The international banking portion of the (Loss) Income from discontinued transaction generated an after-tax loss of $22 million operations, net of tax $(22) $ 513 $ 830 reported in discontinued operations for banking activities the Company exited in Brazil. These banking activities Less than $1 million of goodwill was included in the previously were reflected in the International Card & assets of the Brazilian banking activities that were Global Commercial Services segment. Financial results discontinued as of June 30, 2006. Approximately $670 for these operations, prior to the second quarter of million of goodwill related to Ameriprise and certain dispositions, including TBS, was included in the assets 2006, were not reclassified as discontinued operations [ 83 ] because such results are not material. Refer to Note 1 that were discontinued as of September 30, 2005. for a discussion of the impact of the sale of the Brazilian card and merchant-related activities, which are included NOTE 3 INVESTMENTS in continuing operations. The following is a summary of investments at December 31: On September 30, 2005, the Company completed the distribution of Ameriprise common stock to the (Millions) 2006 2005 Company’s shareholders in a tax-free transaction for U.S. Available-for-Sale, at fair value: federal income tax purposes. The Ameriprise distribution State and municipal obligations $ 6,863 $ 7,120 was treated as a non-cash dividend to shareholders and, U.S. Government and agencies as such, reduced the Company’s shareholders’ equity by obligations(a) 5,077 5,033 $7.7 billion as of December 31, 2005, which included an Mortgage and other asset-backed approximate $1.1 billion capital contribution to Ameriprise securities 3,791 3,838 in connection with the distribution. The Company’s Corporate debt securities 2,512 3,202 Consolidated Balance Sheet as of December 31, 2005, Foreign government bonds and obligations 680 716 reflects the non-cash dividend and a decrease in assets and liabilities. Other 1,772 1,194 Total Available-for-Sale, at fair value 20,695 21,103 Trading, at fair value 295 231 Total $20,990 $ 21,334

(a) U.S. Government and agencies obligations at December 31, 2006, included $716 million of securities loaned out on an overnight basis to financial institutions under the securities lending program described on page 86. At December 31, 2005, there were no securities loaned out. notes to consolidated fi nancial statements american express company

AVAILABLE-FOR-SALE INVESTMENTS The following is a summary of investments classified as Available-for-Sale at December 31:

2006 2005 Gross Gross Gross Gross Unrealized Unrealized Fair Unrealized Unrealized Fair (Millions) Cost Gains Losses Value Cost Gains Losses Value State and municipal obligations $ 6,678 $ 195 $ (10) $ 6,863 $ 6,832 $ 293 $ (5) $ 7,120 U.S. Government and agencies obligations 5,082 10 (15) 5,077 5,080 1 (48) 5,033 Mortgage and other asset-backed securities 3,858 8 (75) 3,791 3,900 13 (75) 3,838 Corporate debt securities 2,539 17 (44) 2,512 3,170 79 (47) 3,202 Foreign government bonds and obligations 688 3 (11) 680 718 7 (9) 716 Other 1,773 3 (4) 1,772 1,184 10 — 1,194 Total $20,618 $236 $(159) $20,695 $20,884 $ 403 $ (184) $21,103

The following tables provide information about Available-for-Sale investments with gross unrealized losses and the length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2006 and 2005:

As of December 31, 2006 (Millions) Less than 12 months 12 months or more Total Gross Gross Gross Fair Unrealized Fair Unrealized Fair Unrealized Description of Securities Value Losses Value Losses Value Losses State and municipal obligations $ 818 $ (9) $ 23 $ (1) $ 841 $ (10) [ 84 ] U.S. Government and agencies obligations 1,522 (3) 1,537 (12) 3,059 (15) Mortgage and other asset-backed securities 345 (2) 2,518 (73) 2,863 (75) Corporate debt securities 441 (5) 1,511 (39) 1,952 (44) Foreign government bonds and obligations 269 (1) 174 (10) 443 (11) Other 191 (4) 16 — 207 (4) Total $3,586 $(24)$5,779$(135)$9,365$(159)

As of December 31, 2005 (Millions) Less than 12 months 12 months or more Total Gross Gross Gross Fair Unrealized Fair Unrealized Fair Unrealized Description of Securities Value Losses Value Losses Value Losses State and municipal obligations $ 392 $ (4) $ 19 $ (1) $ 411 $ (5) U.S. Government and agencies obligations 1,716 (17) 2,893 (31) 4,609 (48) Mortgage and other asset-backed securities 1,803 (31) 1,298 (44) 3,101 (75) Corporate debt securities 750 (15) 821 (32) 1,571 (47) Foreign government bonds and obligations 283 (2) 58 (7) 341 (9) Other 10—6—16— Total $ 4,954 $ (69) $ 5,095 $ (115) $ 10,049 $ (184) notes to consolidated fi nancial statements american express company

The Company reviews and evaluates investments on a quarterly basis to identify investments that have indications of possible other-than-temporary impairments. Accordingly, the Company considers the extent to which amortized cost exceeds fair value and the duration and size of that difference. A key metric in performing this evaluation is the ratio of fair value to amortized cost. The following table summarizes the unrealized losses of temporary impairments by ratio of fair value to amortized cost as of December 31, 2006:

(Millions, except number of securities) Less than 12 months 12 months or more Total Gross Gross Gross Ratio of Fair Value to Number of Fair Unrealized Number of Fair Unrealized Number of Fair Unrealized Amortized Cost Securities Value Losses Securities Value Losses Securities Value Losses 90%–100% 618$3,586$(24)554$5,734$(128)1,172$9,320$(152) Less than 90% 123— —6645(7)18945(7) Total 741$3,586$(24)620$5,779$(135)1,361$9,365$(159)

Unrealized losses may be caused by changes to interest For 2005 activity, the table above excludes $391 million rates, credit spreads, and specific credit events associated of net change in accumulated other comprehensive with individual issuers. Substantially all of the gross loss related to discontinued operations. As of unrealized losses on the securities are attributable to December 31, 2006 and 2005, net unrealized changes in interest rates. The securities with a fair value securities gains, net of tax, reflected in accumulated to amortized cost ratio of less than 90 percent consist other comprehensive loss were $92 million primarily of Federal National Mortgage Association and $137 million, respectively. and Federal Home Loan Mortgage Corporation The following is a distribution of investments issued mortgage-backed securities, as well as foreign classified as Available-for-Sale by maturity as of government and specific corporate issued bonds. The December 31, 2006: securities with a fair value to amortized cost ratio of 90 Fair percent to 100 percent do not contain a concentration (Millions) Cost Value [ 85 ] of any one security or type of security. The Company Due within 1 year $ 3,324 $ 3,314 has the ability and the intent to hold these securities for Due after 1 year through 5 years 6,705 6,689 a time sufficient to recover the unrealized losses and Due after 5 years through 10 years 788 797 expects that contractual principal and interest will be Due after 10 years 5,895 6,054 received on these securities. 16,712 16,854 The change in net unrealized securities gains Mortgage and other asset-backed (losses) in other comprehensive (loss) income includes securities 3,858 3,791 three components: (i) holding gains (losses), which Equity securities 48 50 are unrealized gains (losses) that arise from changes Total $20,618 $20,695 in market value of securities that were held during the period; (ii) reclassification for realized (gains) losses, The expected payments on mortgage and other which are gains (losses) that were previously unrealized, asset-backed securities may not coincide with their but have been recognized in current period net income contractual maturities. Accordingly, these securities, due to sales of Available-for-Sale securities; and (iii) as well as equity securities, are not included in the other (losses) gains primarily related to changes in the maturities distribution. mark of the interest-only strip. Changes in net unrealized securities gains (losses) for the years ended December 31:

(Millions, net of tax) 2006 2005 2004 Holding losses $(17) $(187) $ (83) Reclassification for realized gains (75) (11) (35) Other gains (losses) 47 (18) (53) Net unrealized securities losses in other comprehensive (loss) income $(45) $(216) $(171) notes to consolidated fi nancial statements american express company

Other revenues include gross realized gains and TRADING INVESTMENTS losses on sales of securities, as well as other-than- Trading investments consist principally of certain foreign temporary losses on investments classified as Available- government bonds and seed money investments in mutual for-Sale, as noted in the following table for the years funds for which the Company’s equity ownership is less ended December 31: than 20 percent. There were $13 million, $16 million, and $13 million of realized net gains for 2006, 2005, (Millions) 2006 2005 2004 and 2004, respectively, related to trading investments Gross investment gains from sales held at each balance sheet date. and prepayments (a) $117 $21 $ 23 Gross investment losses from sales and prepayments (1) (4) (1) NOTE 4 LOANS Other-than-temporary impairments — — (10) Loans at December 31 consisted of: Total $116 $17 $ 12 (a) Includes $68 million of gains related to a rebalancing program in (Millions) 2006 2005 the fourth quarter of 2006 to better align the maturity profile of Cardmember lending $43,306 $ 33,104 the Travelers Cheque and Gift Card investment portfolio with its business liquidity needs. International banking: The table below includes purchases, sales and maturities Consumer and private banking 4,734 4,822 of investments classified as Available-for-Sale for the Banks and other institutions 2,470 2,268 years ended December 31: Corporate 20 23 Total international banking 7,224 7,113 (Billions) 2006 2005 Other 987 1,681 Purchases $18 $12 Total loans — gross 51,517 41,898 Sales $6 $4 Less: Reserve for losses 1,269 1,097 Maturities $13 $8 Total $50,248 $ 40,801 The Company entered into securities lending agreements [ 86 ] The following table presents changes in the reserve in June 2006 with other financial institutions. Under for losses: these agreements, certain investment securities are loaned on an overnight basis to financial institutions and (Millions) 2006 2005 2004 are secured by collateral equal to at least 102 percent of Balance, January 1 $1,097 $ 1,084 $ 1,121 the fair market value of the investment securities lent. Provision: Collateral received by the Company can be in the form Cardmember lending 1,623 1,349 1,130 of cash or marketable U.S. Treasury or government International banking and agency securities. The Company may only retain or other 76 32 58 sell these securities in the event of a borrower default. Total provision 1,699 1,381 1,188 The Company’s loaned investment securities continued Write offs: to be classified as investments on the Consolidated Cardmember lending (1,635) (1,449) (1,205) Balance Sheet, but are now considered restricted and International banking and pledged assets. The marketable securities received other (104) (67) (114) as collateral are not recorded in the Consolidated Total write offs (1,739) (1,516) (1,319) Balance Sheet, as the Company is not permitted to sell Recoveries and other: or repledge these securities absent a borrower default. Cardmember lending 187 124 49 Fees received from the securities lending transactions International banking and are recorded as other investment and interest income, other 25 24 45 net of interest. At December 31, 2006, approximately Total recoveries and other 212 148 94 $716 million of investment securities were loaned under Balance, December 31 $1,269 $ 1,097 $ 1,084 these agreements. notes to consolidated fi nancial statements american express company

Individually “impaired” loans are defined by GAAP Lending Trust (Lending Trust assets) less the investors’ as larger balance or restructured loans for which it is portion of those assets (securitized cardmember loans). probable that the lender will be unable to collect all Seller’s interest is reported as cardmember loans on the amounts due according to the original contractual Company’s Consolidated Balance Sheets. Any billed terms of the loan agreement. An analysis of impaired finance charges related to the transferred cardmember loans follows: loans are reported as other receivables on the Company’s Consolidated Balance Sheets. The Company also (Millions) 2006 2005 retains subordinated interests in the securitized Loans requiring allowance for losses $136 $20 cardmember loans. These interests may include one Loans expected to be fully recoverable 104 270 or more investments in tranches of the securitization Total impaired loans $240 $ 290 (subordinated securities) and an interest-only strip. The Reserve for losses $72 $15 following table presents retained subordinated interests Average investment during the year $301 $ 121 for the years ended December 31: Interest income recognized while impaired $3$— (Millions) 2006 2005 Loans amounting to $508 million and $311 million at Interest-only strip $ 266 $ 209 December 31, 2006 and 2005, respectively, were past Subordinated securities — 70 due 90 days or more and still accruing interest. These Total $ 266 $ 279 amounts primarily relate to cardmember lending for The subordinated securities are accounted for at fair which the Company’s policy is to cease accruing for value as Available-for-Sale investment securities and are interest receivable once a related cardmember loan is reported in investments on the Company’s Consolidated more than 180 days past due. Balance Sheets as of December 31, 2005. The Company had no subordinated securities at December 31, 2006. NOTE 5 SECURITIZED LOANS The interest-only strip is also accounted for at fair value The Company periodically securitizes cardmember as an Available-for-Sale investment security, and is [ 87 ] loans through the American Express Credit Account reported in other assets. The fair value of the interest- Master Trust (the Lending Trust). The following table only strip is the present value of estimated future excess illustrates the activity in the Lending Trust (including spread expected to be generated by the securitized loans the securitized cardmember loans and seller’s interest) over the estimated life of those loans. for the years ended December 31: The following table summarizes the activity related to securitized loans reported in securitization income, (Millions) 2006 2005 net for the years ended December 31: Lending Trust assets, January 1 $28,854 $24,720 Account additions, net 5,932 3,862 (Millions) 2006 2005 2004 (a) Cardmember activity, net (202) 272 Excess spread, net $1,055 $ 811 $ 671 Lending Trust assets, December 31 $34,584 $28,854 Servicing fees 407 412 388 Gains on sales from securitizations 27 37 73 Securitized cardmember loans, January 1 $21,175 $20,275 Total securitization income $1,489 $1,260 $1,132 Impact of issuances 3,500 5,400 Impact of maturities (4,505) (4,500) (a) Excess spread is the net positive cash flow from interest and fee collections allocated to the investor’s interests after deducting the Securitized cardmember loans, interest paid on investor certificates, credit losses, contractual December 31 $20,170 $21,175 servicing fees, and other expenses. Seller’s interest, January 1 $7,679 $ 4,445 At the time of a cardmember loan securitization, the Impact of issuances (3,500) (5,400) Company records a gain on sale, which is calculated Impact of maturities 4,505 4,500 as the difference between the proceeds from the sale Account additions, net 5,932 3,862 and the book basis of the cardmember loans sold. The Cardmember activity, net (202) 272 book basis is determined by allocating the carrying Seller’s interest, December 31 $14,414 $ 7,679 amount of the sold cardmember loans, net of applicable credit reserves, between the cardmember loans sold The Company, through its subsidiaries, is required and the interests retained based on their relative fair to maintain an undivided interest in the transferred values. Such fair values are based on market prices at cardmember loans (seller’s interest), which is equal to the date of transfer for the sold cardmember loans and the balance of all cardmember loans transferred to the on the estimated present value of future cash flows for notes to consolidated fi nancial statements american express company

retained interests. Gains on sale from securitizations are The following table presents quantitative information reported in securitization income, net on the Company’s about delinquencies, net credit losses, and components Consolidated Statements of Income. The income of securitized cardmember loans on a trust basis at component resulting from the release of credit reserves December 31: upon sale is reported as a reduction of provision for losses Principal from cardmember lending. Amount of Net The Company retains servicing responsibilities for Total Loans 30 Credit Principal Days or Losses the transferred cardmember loans through its subsidiary, Amount More Past During American Express Travel Related Services Company, (Billions) of Loans Due the Year Inc., and earns a related fee. No servicing asset or liability 2006 is recognized at the time of a securitization because the Cardmember loans managed $63.5 $1.7 $1.9 Company receives adequate compensation relative to Less: Cardmember loans sold 20.2 0.5 0.6 current market servicing fees. Cardmember loans on-balance Management utilizes certain estimates and sheet $43.3 $1.2 $1.3 assumptions to determine the fair value of the retained 2005 subordinated interests, including subordinated securities Cardmember loans managed $54.3 $1.3 $2.1 and the interest-only strip. These estimates and Less: Cardmember loans sold 21.2 0.6 1.0 assumptions are based on projections of finance charges Cardmember loans on-balance and fees paid related to the securitized assets, expected sheet $33.1 $0.7 $1.1 credit losses, average loan life (i.e., monthly payment The three key economic assumptions and the sensitivity rate), the contractual fee to service the transferred assets, of the current year’s fair value of the interest-only strip and a discount rate applied to the cash flows from the to immediate 10 percent and 20 percent adverse changes subordinated retained interests which is commensurate in these assumptions are as follows: with the inherent risk. Changes in the estimates and Cash Flows from assumptions used may have a significant impact in the Monthly Expected Interest-only [ 88 ] Payment Credit Strips Company’s valuation. The key economic assumptions (Millions, except rates per annum) Rate Losses Discounted at used in measuring the retained subordinated interests at Assumption 25.6% 2.6% 12.0 % the time of issuance and during 2006 and 2005 were as Impact on fair value of follows (rates are per annum): 10% adverse change $ (17) $ (12) $ (0.5) Impact on fair value of 2006 2005 20% adverse change $ (33) $ (24) $ (1.0) Weighted average loan life (months) 4 4 These sensitivities are hypothetical. Management cannot Expected credit losses 2.60%–3.37% 3.30%–3.90% extrapolate changes in fair value based on a 10 percent or Subordinated certificates 20 percent change in all key assumptions simultaneously discounted at 4.9% - 5.3% 2.6%–4.8% in part because the relationship of the change in one Residual cash flows assumption on the fair value of the retained interest discounted at 12.0% 12.0% is calculated independent from any change in another Returns to investors: assumption. Changes in one factor may cause changes in Variable Contractual Contractual another, which could magnify or offset the sensitivities. spread spread over LIBOR over LIBOR ranging from ranging from -0.01% to .90% .00% to .90% Fixed 1.7%–5.8% 1.7%–5.8% notes to consolidated fi nancial statements american express company

The table below summarizes cash flows received from The Company’s securitizations of cardmember the Lending Trust for the years ended December 31: receivables are accounted for as secured borrowings, rather than as qualifying sales, because the receivables (Millions) 2006 2005 are transferred to a non-qualifying special purpose Proceeds from new securitizations entity, the American Express Issuance Trust (the Charge during the period $ 3,491 $ 5,386 Trust). The cardmember receivables securitized through Proceeds from collections reinvested in revolving cardmember securitizations $62,411 $ 63,011 this entity are not accounted for as sold and the securities issued by this entity to third-party investors are reported Servicing fees received $ 407 $ 412 as long-term debt on the Company’s Consolidated Other cash flows received on retained interests from interest-only strips $ 2,517 $ 2,194 Balance Sheets. The following table summarizes the total assets and liabilities held by the Charge Trust at NOTE 6 VARIABLE INTEREST ENTITIES December 31:

During the third quarter of 2005 and in conjunction (Billions) 2006 2005 with the spin-off of Ameriprise, the Company and Assets $9.6 $9.9 Ameriprise executed a reinsurance agreement providing Liabilities $1.2 $1.2 that the Company would retain the risks and rewards of the travel and other card insurance businesses of The Charge Trust is consolidated by American AMEX Assurance Company (AAC), a subsidiary of Express Receivables Financing Corporation V LLC, a Ameriprise. The Company also entered into a share variable interest entity, which is in turn consolidated by purchase agreement with Ameriprise under which the the Company. Company will acquire all of the ownership interests The Company has other variable interests for in and the rights and obligations of AAC within a which it is not considered the primary beneficiary and, period not to exceed two years from the spin-off date of therefore, does not consolidate. For these variable interests the Company is a limited partner in affordable September 30, 2005. The purchase price equals AAC’s [ 89 ] net book value as of September 30, 2005, which was $115 housing partnerships in which the Company typically million. As a result of these agreements, the Company has a less than 50 percent interest and receives the consolidates AAC as a variable interest entity for which benefits and accepts the risks consistent with its limited the Company is considered the primary beneficiary. partners. In the limited cases in which the Company has The Company recorded a $115 million liability related a greater than 50 percent interest in affordable housing to the purchase of AAC, which is included in other partnerships, it was determined that the general partner liabilities on the Consolidated Balance Sheets as of acts as the Company’s agent and the general partner is December 31, 2006 and 2005. most closely related to the partnership as it is the key The following table presents a summary of the decision maker and controls the operations. These consolidated assets and liabilities of AAC at December partnership interests are accounted for under EITF 31, for which the assets are restricted from use by the No. 94-01, “Accounting for Tax Benefits Resulting Company and not available to the Company’s creditors: from Investments in Affordable Housing Projects,” and the related accounting guidance of Statement of (Millions) 2006 2005 Position No. 78-9, “Accounting for Investments in Real Assets: Estate Ventures” and EITF Topic D-46, “Accounting for Cash and cash equivalents $21 $29 Limited Partnership Investments.” Affordable housing Investments 90 83 partnerships interest are represented by a carrying value of Other assets 408 56 $120 million and $134 million at December 31, 2006 and Total assets 519 168 2005, respectively. The Company’s maximum exposure to Total liabilities 399 51 loss as a result of its investment in these partnerships is Net assets $120 $117 represented by the carrying value. notes to consolidated fi nancial statements american express company

NOTE 7 GOODWILL AND OTHER INTANGIBLE ASSETS

GOODWILL The changes in the carrying amount of goodwill reported in the Company’s reportable operating segments were as follows:

International Card & Global Global Network & U.S. Card Commercial Merchant (Millions) Services Services Services Total Balance at January 1, 2005 $183 $1,222 $104 $1,509 Other, including foreign currency translation — (20) — (20 ) Balance at December 31, 2005 183 1,202 104 1,489 Acquisitions(a) — 105 2 107 Dispositions(b) — (33) — (33) Other, including foreign currency translation and reclassifications — 12 (79) (67) Balance at December 31, 2006 $183 $1,286 $ 27 $1,496

(a) Approximately $100 million related to Harbor Payments. See Note 1 for further discussion. (b) Relates to the disposition of the card and merchant-related activities in Brazil to Bradesco, effective June 30, 2006. See Note 1 for further discussion.

OTHER INTANGIBLE ASSETS The gross carrying value and accumulated amortization related to other intangible assets, primarily customer relationships, at December 31 are presented below:

(Millions) 2006 2005 Gross Carrying Accumulated Net Carrying Gross Carrying Accumulated Net Carrying [ 90 ] Amount Amortization Amount Amount Amortization Amount Other intangible assets $343 $186 $157 $271 $159 $112

During 2006, the Company acquired $108 million of intangible assets, which are being amortized, on average, over 6 years. The aggregate intangible asset amortization expense was $60 million, $49 million, and $46 million in 2006, 2005, and 2004, respectively. Estimated intangible amortization expense for the next five years is as follows:

(Millions) 2007 2008 2009 2010 2011 Estimated amortization expense $41 $35 $27 $21 $10

NOTE 8 SHORT- AND LONG-TERM DEBT AND BORROWING AGREEMENTS

SHORT-TERM DEBT The Company’s short-term debt outstanding, defined as debt with original maturities of less than one year, at December 31 was as follows: (Millions, except percentages) 2006 2005 Year-End Year-End Notional Year-End Effective Notional Year-End Effective Amount Stated Interest Amount Stated Interest Outstanding of Rate on Rate with Maturity Outstanding of Rate on Rate with Maturity Balance Swaps Debt(a) Swaps(a) of Swaps Balance Swaps Debt(a) Swaps(a) of Swaps Commercial paper $ 5,782 $ — 5.23% — — $ 7,742 $ — 4.19% — — Borrowed funds 2,535 210 4.74% 4.74% 2007–2010 3,257 133 4.72% 4.73% 2006–2010 Bank notes payable 6,100 — 5.31% — — 3,748 — 4.51% — — Other 745 — 2.41% — — 886 — 2.86% — — Total $15,162 $ 210 5.04% $15,633 $133 4.30%

(a) For floating rate debt issuances, the stated and effective interest rates were based on the respective rates at December 31, 2006 and 2005. These rates are not indicative of future interest rates. Unused lines of credit to support commercial paper borrowings were approximately $8.1 billion and $9.3 billion at December 31, 2006 and 2005, respectively. notes to consolidated fi nancial statements american express company

LONG-TERM DEBT The Company’s long-term debt outstanding, defined as debt with original maturities of one year or greater, at December 31, was as follows:

(Millions, except percentages) 2006 2005 Year- Year-End End Effective Year- Effective Year-End Interest End Interest Notional Stated Rate Notional Stated Rate Outstanding Amount Rate on with Maturity Outstanding Amount Rate on with Maturity Balance of Swaps Debt(a) Swaps(a) of Swaps Balance of Swaps Debt(a) Swaps(a) of Swaps American Express Company (Parent Company only) Convertible Debentures due September 1, 2033(b) $—$— — — —$ 2,000 $ — 1.85% — — Fixed and Floating Rate Senior Notes due 2007– 2033 5,244 — 5.04% — — 3,242 — 4.79% — — Subordinated Debentures due 2036(c) 750 — 6.80% — — ———— — American Express Travel Related Services Company, Inc.(d) Fixed and Floating Rate Senior Notes due 2009- 2011 2,000 500 4.95% 4.98% 2011 500 — 3.63% — — American Express Credit Corporation Fixed and Floating Rate Senior and Medium- Term Notes due 2007– 2017(e) 19,037 4,248 5.10% 5.10% 2008-2015 13,600 6,350 4.48% 2.99% 2006–2015 [ 91 ] Borrowings under Bank Credit Facilities due 2009 2,753 916 6.69% 6.49% 2007-2010 3,329 3,028 5.25% 5.12% 2006–2010 American Express Centurion Bank Fixed and Floating Rate Senior and Medium- Term Notes due 2007- 2009 7,541 1,300 5.33% 5.34% 2007-2009 4,342 1,000 4.44% 4.31% 2006–2009 American Express Bank, FSB Floating Rate Medium- Term Notes due 2007– 2009 4,000 300 5.38% 5.27% 2007 2,350 1,000 4.39% 4.18% 2006–2007 American Express Receivables Financing Corporation V LLC Floating Rate Senior Notes due 2010–2012 1,116 — 5.38% — — 1,116 — 4.42% — — Floating Rate Subordinated Notes due 2010–2012 84 — 5.66% — — 84 — 4.70% — — Other Fixed Rate and Floating Rate Notes due 2007– 2014(f) 222 69 6.83% 7.59% 2007 218 105 5.77% 6.38% 2006–2007 Total $42,747 $7,333 5.30% $30,781 $11,483 4.41% (a) For floating rate debt issuances, the stated and effective interest rates were based on the respective rates at December 31, 2006 and 2005. These rates are not indicative of future interest rates. (b) At December 1, 2006, American Express Parent Company remarketed the $2 billion Convertible Debentures outstanding at December 31, 2005 into unsecured 5.48 percent floating rate senior notes due 2033. (c) During 2006, American Express Parent Company issued approximately $750 million of Subordinated Debentures due 2036. The maturity date will automatically be extended to September 1, 2066, except in the case of (1) prior redemption or (2) default related to the debentures. (d) American Express Travel Related Services Company, Inc. fixed and floating rate senior notes were issued by the Travel Related Services Parent Company. (e) These balances include $2 billion and $1 billion notes which are subject to extension by the holders through March 5, 2008 and June 20, 2011, respectively. (f ) This balance includes $92 million and $93 million related to sale-leaseback transactions as of December 31, 2006 and 2005, respectively, as described in Note 11. notes to consolidated fi nancial statements american express company

Debt issuance costs are deferred and amortized over the be required to issue shares of its common stock and term of the related instrument or, if the holder has a put apply the net proceeds to make interest payments on the option, over the put term. Subordinated Debentures. As of December 31, 2006, the Company had As of December 31, 2005, the Company had $2 $750 million principal outstanding of Subordinated billion principal outstanding of 1.85 percent Convertible Debentures due 2036 and automatically extendible Senior Debentures due 2033 (the Senior Debentures), until 2066 unless certain events occur prior to that date. which were unsecured obligations of the Company. The Subordinated Debentures will accrue interest at On December 1, 2006, the Senior Debentures were an annual rate of 6.80 percent until September 1, 2016 remarketed into unsecured, floating rate Senior Notes and at an annual rate of three-month LIBOR plus due 2033 (the Senior Notes). The Senior Notes may be 2.23 percent thereafter. At the Company’s option, the put to the Company at par on June 5, 2008, and accrue Subordinated Debentures are redeemable for cash after interest at an annual rate of three-month LIBOR plus September 1, 2016 at 100 percent of the principal amount 11.435 basis points. Contingent interest payments up to plus any accrued but unpaid interest. If the Company 4 percent are required if the Senior Notes are not rated fails to achieve specified performance measures it would at certain levels by rating agencies.

Aggregate annual maturities on long-term debt obligations (based on final maturity dates) at December 31, 2006, are as follows:

(Millions) 2007 2008 2009 2010 2011 Thereafter Total American Express Company (Parent Company only) $ 749 $ — $ 500 $ — $ 400 $4,345 $ 5,994 American Express Travel Related Services Company, Inc. — — 800 — 1,200 — 2,000 American Express Credit Corporation 3,440 7,313 7,157 2,029 1,453 398 21,790 American Express Centurion Bank 3,691 1,150 2,700 — — — 7,541 [ 92 ] American Express Bank, FSB 800 2,100 1,100 — — — 4,000 American Express Receivables Financing Corporation V LLC — — — 600 — 600 1,200 Other 74 43 13 — — 92 222 Total $8,754 $10,606 $12,270 $2,629 $3,053 $5,435 $42,747

As of December 31, 2006 and 2005, the Company SHORT- AND LONG-TERM DEBT HEDGING ACTIVITY maintained total bank lines of credit, including lines As of December 31, 2006, in addition to the hedges of supporting commercial paper borrowings, of $11.6 existing short- and long-term debt, the Company has billion and $13.4 billion, respectively, of which $8.9 designated the interest rate risk associated with cash flows billion and $10.1 billion were unutilized as of December related to future short- and long-term debt issuances as 31, 2006 and 2005, respectively. part of its hedging program. The notional amount of The Company paid total interest (including amounts such designated derivative financial instruments was related to discontinued operations) primarily related $3 billion, reflecting the hedge of future cash flows of to short- and long-term debt, corresponding interest anticipated issuances in 2007 through 2010. rate products and customer deposits (net of amounts See Note 10 for additional discussion of the capitalized or refunded) of $3.2 billion, $2.4 billion, and Company’s cash flow hedging strategies. $1.6 billion in 2006, 2005, and 2004, respectively. notes to consolidated fi nancial statements american express company

NOTE 9 COMMON AND PREFERRED SHARES risks and, for that reason, are an integral component of the Company’s market risk and related asset/liability The Company has a share repurchase program to return management strategy and processes. Within each equity capital in excess of business needs to shareholders. business, market risk exposures are monitored and The share repurchases both offset the issuance of new managed by various asset/liability committees, guided shares as part of employee compensation plans and by Board-approved policies covering derivative financial reduce the number of shares outstanding. In May 2006, instruments, funding, and investments. The value of the Company’s Board of Directors authorized the derivative instruments is derived from an underlying repurchase of an additional 200 million shares of the variable or multiple variables, including commodity, Company’s common stock. At December 31, 2006, the equity, foreign exchange, and interest rate indices or Company has 165 million shares remaining under the prices. share repurchase authorizations. Such authorizations For the Company’s charge card and fixed-rate do not have an expiration date, and at present, there lending products, interest rate exposure is managed by is no intention to modify or otherwise rescind the shifting the mix of funding toward fixed-rate debt and current authorizations. by using derivative instruments, with an emphasis on Of the common shares authorized but unissued at interest rate swaps, which effectively fix interest expense December 31, 2006, approximately 174 million shares for the length of the swap. The Company endeavors to were reserved for issuance for employee stock, employee lengthen the maturity of interest rate hedges in periods benefit and dividend reinvestment plans. of low or falling interest rates and to shorten their The following table provides a reconciliation of maturity in periods of high or rising interest rates. For common shares outstanding: the majority of its cardmember loans, which are linked (Millions) 2006 2005 2004 to a floating rate base and generally reprice each month, Shares outstanding at beginning of year 1,241 1,249 1,284 the Company uses floating rate funding. The Company Repurchases of common shares (75) (34) (69) regularly reviews its strategy and may modify it based on Acquisition of Harbor Payments 2 ——the market conditions. [ 93 ] Other, primarily employee benefit plans 31 26 34 Credit risk associated with the Company’s derivatives Shares outstanding at end of year 1,199 1,241 1,249 is limited to the risk that a derivative counterparty will not perform in accordance with the terms of The Board of Directors is authorized to permit the the contract. To mitigate the risk, counterparties are Company to issue up to 20 million preferred shares required to be pre-approved and rated as investment without further shareholder approval. grade. Counterparty risk exposures are monitored by the At December 31, 2006 and 2005, no preferred shares Company’s Institutional Risk Management Committee had been issued. (IRMC). The IRMC formally reviews large institutional exposures to ensure compliance with Enterprise- NOTE 10 DERIVATIVES AND HEDGING wide Risk Management Committee guidelines and ACTIVITIES procedures and determines the risk mitigation actions, The Company uses derivative financial instruments when necessary. Additionally, the Company may, from to manage exposure to various market risks and for time to time, enter into master netting agreements where customer accommodation and for limited proprietary practical. trading purposes. These instruments enable end users to increase, reduce, or alter exposure to various market

The following table summarizes the total fair value, excluding accruals, of derivative product assets and liabilities at December 31:

(Millions) 2006 2005 Assets Liabilities Assets Liabilities Cash flow hedges $64 $21 $ 226 $ 5 Fair value hedges —74 497 Net investment hedges 82020 13 Derivatives not designated as hedges 355 303 280 214 Embedded derivatives accounted for separately from the host contract —30—25 Total fair value, excluding accruals $ 427 $ 448 $ 530 $ 354 notes to consolidated fi nancial statements american express company

The following table summarizes the income effects of derivatives for the years ended December 31:

(Millions) 2006 2005 2004 Cash flow hedges(a): Ineffective net (losses) gains $ (2) $3$1 Gains (losses) on forecasted transactions no longer probable to occur $6$ (2) $ 16 Reclassification of realized gains (losses) from other comprehensive (loss) income, net of tax of $85, $23, and $(161), respectively $ 158 $ 44 $(298)

Fair value hedges(a): Ineffective net gains $2$— $—

Net investment hedges: Reclassification of loss from cumulative translation adjustment as a result of sales of foreign entities $(183) $— $—

(a) There were no (losses) gains due to exclusion from the assessment of hedge effectiveness for 2006, 2005, and 2004.

The following table summarizes the net change in accumulated other comprehensive (loss) income of derivatives for the years ended December 31:

(Millions) 2006 2005 2004 Cash flow hedges(a): Unrealized gains, net of tax of $22, $161, and $3, respectively $42 $ 300 $ 6 Reclassification for realized (gains) losses, net of tax of $(85), $(23), and $161, respectively (158) (44) 298 [ 94 ] Net change in accumulated other comprehensive (loss) income $(116) $ 256 $304 Net investment hedges: Net (losses) gains related to hedges in cumulative translation adjustment $(241) $ (8) $259 Reclassification of loss from cumulative translation adjustment as a result of sales of foreign entities 183 —— Net change in accumulated other comprehensive (loss) income $ (58) $ (8) $259

(a) For 2005 cash flow hedge activity, the table above excludes a $19 million net increase in accumulated other comprehensive (loss) income related to discontinued operations.

CASH FLOW HEDGES forecasted purchase of investment securities by foreign A cash flow hedge is a derivative designated to hedge subsidiaries. The anticipated transactions were no longer the exposure of variable future cash flows that is likely to occur in accordance with the original strategy. attributable to a particular risk associated with an As of December 31, 2006 and 2005, net unrealized existing recognized asset or liability, or a forecasted derivatives gains, net of tax, reflected in accumulated transaction. The Company uses interest rate products, other comprehensive loss were $27 million and $143 primarily interest rate swaps, to manage interest rate million, respectively. risk related to the charge card business. These swaps are At December 31, 2006, the Company expects to used to achieve a targeted mix of fixed and floating rate reclassify $27 million of net pretax gains on derivative funding, as well as to protect the Company from interest instruments from accumulated other comprehensive rate risk by hedging existing long-term variable-rate (loss) income to earnings during the next twelve debt, the rollover of short-term debt and the anticipated months. In the event that cash flow hedge accounting forecasted issuance of additional funding. Note 8 is no longer applied (i.e., the Company de-designates a provides additional discussion of the cash flow hedging derivative as a hedge, a hedge is no longer considered strategies related to short- and long-term debt. During to be highly effective, or the forecasted transaction 2006, the Company discontinued its foreign currency being hedged is no longer probable of occurring), the risk cash flow hedge program, which related to the reclassification from accumulated other comprehensive notes to consolidated fi nancial statements american express company

(loss) income into earnings may be accelerated and all funding costs related to the credit card business. Within future market value fluctuations of the derivative will its international banking operations, the Company enters be reflected in earnings. into derivative contracts to meet the needs of its clients Currently, the longest period of time over which the and, to a limited extent, for trading purposes, including Company is hedging exposure to variability in future taking proprietary positions. The international banking cash flows is approximately four years, which is related derivative activities also include economic hedging of to long-term debt. various foreign currency and interest rate exposures related to the Company’s other banking activities. The FAIR VALUE HEDGES following table provides the total fair value, excluding A fair value hedge is a derivative designated to hedge accruals, of these derivative products assets and liabilities the exposure of future changes in the fair value of an as of December 31: asset or a liability, or an identified portion thereof that is attributable to a particular risk. The Company is (Millions) 2006 2005 exposed to interest rate risk associated with its fixed-rate Assets Liabilities Assets Liabilities long-term debt and fixed-rate corporate debt securities. Foreign currency The Company uses interest rate swaps to convert certain transactions $13 $ 3 $13 $13 fixed-rate long-term debt to floating rate at the time Interest rate swaps $12 $10 $— $— of issuance. From time to time, the Company enters International banking operations(a) $ 330 $ 320 $ 267 $ 226 into interest rate swaps to hedge its exposure related to fixed-rate corporate debt securities. Prior to 2006, in (a) 2006 and 2005 liabilities include embedded derivatives of $30 conjunction with its international banking activities, million and $25 million, respectively. the Company hedged the fair value changes related to a portion of its callable term customer deposits using EMBEDDED DERIVATIVES callable interest rate swaps. The Company no longer The Company has identified certain derivatives hedges the fair value changes related to callable term embedded in other financial instruments that are customer deposits because the term certificate of deposit required to be accounted for separately from the host [ 95 ] was modified and hedge accounting is no longer deemed financial instrument. Such items included certain applicable to prospective transactions. structured customer deposit products issued by the international banking operations which have returns NET INVESTMENT HEDGES tied to the performance of equity markets, interest rates A net investment hedge in a foreign operation or other indices, and financial instruments. is a derivative used to hedge future changes in currency exposure of a net investment in a foreign NOTE 11 GUARANTEES AND CERTAIN OFF- operation. The Company designates foreign currency BALANCE SHEET ITEMS derivatives, primarily forward agreements, as hedges of net investments in certain foreign operations. These The Company provides cardmember protection plans derivatives reduce exposure to changes in currency that cover losses associated with purchased products, exchange rates on the Company’s investments in non- as well as other guarantees in the ordinary course of U.S. subsidiaries. business that are within the scope of FASB Financial Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including DERIVATIVES NOT DESIGNATED AS HEDGES Indirect Guarantees of Indebtedness of Others,” (FIN The Company has economic hedges that either do 45). For the Company, FIN 45 guarantees primarily not qualify or are not designated for hedge accounting consist of card and travel protection programs, including treatment. Foreign currency transactions and non-U.S. those that (i) cancel and request replacements of lost or dollar cash flow exposures are economically hedged, where stolen cards, and provide for fraud liability coverage; (ii) practical, through foreign currency contracts, primarily protect eligible purchases made with the card against forward contracts, foreign currency options, and cross- accidental damage or theft for up to 90 days from the currency swaps, and generally mature within one year. date of purchase; (iii) provide account protection in the Foreign currency contracts involve the purchase and sale of event that a cardmember is unable to make payments a designated currency at an agreed upon rate for settlement on the account due to unforeseen hardship; (iv) protect on a specified date. From time to time, the Company cardmembers against billing disputes with the merchant, will enter into interest rate swaps to specifically manage notes to consolidated fi nancial statements american express company

primarily for non-delivery of goods and services; and commitment under all noncancelable operating leases (v) indemnify cardmembers against losses due to lost (net of subleases of $33 million) was: baggage while traveling. The following table provides information related to (Millions) such guarantees as of December 31: 2007 $ 227 2008 217 2006 2005 2009 187 Maximum Maximum amount of amount of 2010 169 undiscounted Amount undiscounted Amount future of related future of related 2011 144 payments(a) liability(b) payments(a) liability(b) Thereafter 1,491 Type of Guarantee (Billions) (Millions) (Billions) (Millions) Total $2,435 Card and travel operations(c) $75 $119 $95 $124 Obligations under capital leases or other similar International arrangements entered into by the Company are not banking and material. (d) other 277 282During 2005, the Company completed sale-leaseback Total $77 $196 $97 $206 transactions on four of its owned properties which were (a) Calculated based on the hypothetical scenario that all claims occur sold at fair value. Pursuant to SFAS No. 13, “Accounting within the next 12 months. for Leases,” as amended, all of these transactions are (b) Included as part of other liabilities on the Company’s Consolidated included in total operating lease obligations. Proceeds Balance Sheets. totaled $172 million and the aggregate net book value of (c) Includes Credit Card Registry, Merchandise Protection, Account Protection, Merchant Protection and Baggage Protection. The the properties removed from the Company’s Consolidated Company generally has no collateral or other recourse provisions Balance Sheet was $124 million. The pretax gain of related to these guarantees. approximately $46 million, net of $2 million in closing (d) Includes contingent consideration obligations as well as guarantees the Company provides through its international banking business, costs, has been deferred and is amortized over the ten- [ 96 ] such as financial letters of credit, performance guarantees and year term of the operating leasebacks as a reduction to financial guarantees. The international banking guarantees range in term from three months to one year. The Company receives rental expense. a fee related to these guarantees, many of which help facilitate In December 2004, the Company completed sale- cross-border transactions. The maximum potential exposure related to the Company’s international banking guarantees at both leaseback transactions on five of its owned properties December 31, 2006 and 2005, was approximately $1 billion for which were sold at fair value. Four of these transactions which the Company held supporting collateral of approximately $940 million at such dates. were accounted for as sale-leasebacks and are included in total operating lease obligations. Proceeds totaled $187 The Company’s commitments related to bank letters of million. The pretax gain of approximately $94 million, credit are included in Note 14. net of $2 million in closing costs, has been deferred and The Company also has certain contingent obligations is amortized over the ten-year term of the operating to make payments under contractual agreements entered leasebacks as a reduction to rental expense. into as part of the ongoing operation of the Company’s One of the 2004 sale-leaseback transactions has business, primarily with co-brand partners. The been accounted for as a financing because of certain contingent obligations under such arrangements were terms contained in the lease agreement. The $95 million $3 billion as of December 31, 2006. in proceeds from this transaction has been classified The Company leases certain facilities and equipment as long-term debt, and the balance was $92 million under noncancelable and cancelable agreements. Total and $93 million as of December 31, 2006 and 2005, rental expense amounted to $311 million, $367 million, respectively. At December 31, 2006, the Company’s and $316 million in 2006, 2005, and 2004, respectively. minimum aggregate rental commitment under this At December 31, 2006, the minimum aggregate rental transaction is approximately $6 million per annum from 2007 through 2011 and $20 million thereafter. There were no sale-leaseback transactions in 2006. notes to consolidated fi nancial statements american express company

NOTE 12 CONTINGENCIES Cheques outstanding, investment certificate reserves, short-term debt, and certain other assets and liabilities. In the ordinary course of their business, the Company For these assets and liabilities, the carrying value and its subsidiaries are involved in a number of legal approximates fair value because these are short-term in and arbitration proceedings. These include several duration, variable rate in nature or recorded at fair value class actions involving the Company’s card businesses. on the Consolidated Balance Sheets. The Company believes it has meritorious defenses to each of the actions it faces and intends to defend INVESTMENTS them vigorously. Generally, investments are carried at fair value on the The Company believes that it is not a party to, nor Consolidated Balance Sheets and gains and losses are are any of its properties the subject of, any pending recognized in the Consolidated Statements of Income legal, arbitration, regulatory, or tax proceedings that upon disposition of the securities or when management would have a material adverse effect on the Company’s determines that a decline in value is other-than- consolidated financial condition, results of operations, temporary. See Note 3 for carrying and fair value or liquidity. However, it is possible that the outcome of information regarding investments. any proceeding could have a material impact on results of operations in the particular reporting period in which DERIVATIVE FINANCIAL INSTRUMENTS it is resolved. Derivative financial instruments are also carried at fair value on the Consolidated Balance Sheets, with gains NOTE 13 FAIR VALUES OF FINANCIAL and losses recognized in the Consolidated Statements INSTRUMENTS of Income or Consolidated Balance Sheets based upon The following table discloses fair value information the nature of the derivative. See Note 10 for fair value of the Company’s financial assets and liabilities as of information regarding derivative financial instruments. December 31: LOANS For variable-rate loans that reprice within one year [ 97 ] (Billions) 2006 2005 Carrying Fair Carrying Fair and for which there has been no significant change in Value Value Value Value counterparties’ creditworthiness, fair values approximate Financial Assets: carrying values. The fair values of all other loans, except Assets for which carrying those with significant credit deterioration, are estimated values equal or using discounted cash flow analysis, based on current approximate fair value $69 $69 $65 $65 interest rates for loans with similar terms to borrowers Loans $50 $50 $41 $41 of similar credit quality. For loans with significant Financial Liabilities: credit deterioration, fair values are based on estimates Liabilities for which of future cash flows discounted at rates commensurate carrying values equal or with the inherent risk in the revised cash projections. approximate fair value $67 $66 $57 $57 For collateral-dependent loans with significant credit Long-term debt $43 $43 $31 $31 deterioration, fair values are based on estimates of The fair values of these financial instruments are collateral values. estimates based upon market conditions and perceived risks as of December 31, 2006 and 2005 and require LONG-TERM DEBT management judgment. These figures may not be For variable-rate long-term debt that reprices within indicative of their future fair values. The fair value of the one year, fair value approximates carrying value. For Company, therefore, cannot be estimated by aggregating other long-term debt, fair value is estimated using either the amounts presented. The following methods were quoted market prices or discounted cash flows based on used to determine fair values. the Company’s current borrowing rates for similar types Financial assets and liabilities for which carrying of borrowing. values equal or approximate fair values include cash See Note 11 for discussion of carrying and fair and cash equivalents, cardmember receivables, accrued value information regarding guarantees and certain off- interest, investments, customers’ deposits, Travelers balance sheet items. notes to consolidated fi nancial statements american express company

NOTE 14 SIGNIFICANT CREDIT EXPOSURE TO AIRLINE INDUSTRY CONCENTRATIONS Historically, the Company has not experienced Credit concentrations arise when customers operate significant revenue declines when a particular airline in similar industries, economic sectors or geographic scales back or ceases operations due to a bankruptcy regions. The Company’s customers operate in diverse or other financial challenges. This is because volumes industries, economic sectors and geographic regions. generated by that airline are typically shifted to other The following table represents the Company’s participants in the industry that accept the Company’s maximum credit exposure by industry, including the card products. Nonetheless, the Company is exposed to credit exposure associated with derivative financial business and credit risk in the airline industry primarily instruments, at December 31: through business arrangements where the Company has remitted payment to the airline for a cardmember purchase of tickets that have not yet been used or (Billions, except percentages) 2006 2005 “flown.” In the event that the cardmember is not able to Financial institutions(a) $ 18.5 $ 16.7 use the ticket and the Company, based on the facts and On-balance sheet 17.0 15.6 circumstances, credits the cardmember for the unused Off-balance sheet 1.5 1.1 ticket, this business arrangement creates a potential Individuals, including cardmember receivables and loans(b) 342.9 280.4 exposure for the Company. This credit exposure is included in the maximum amount of undiscounted future On-balance sheet 78.2 66.6 payments disclosed in Note 11. Historically, this type of Off-balance sheet 264.7 213.8 exposure has not generated any significant losses for the U.S. Government and agencies(c) 11.9 12.2 Company because an airline operating under bankruptcy On-balance sheet 11.9 12.2 protection needs to continue accepting credit and charge All other 14.9 14.2 cards and honoring requests for credits and refunds in On-balance sheet 14.8 14.1 the ordinary course of its business. Typically, as an Off-balance sheet 0.1 0.1 airline’s financial situation deteriorates, the Company [ 98 ] (d) Total $388.2 $323.5 delays payment to the airline thereby increasing cash Composition: withheld to protect the Company in the event the airline On-balance sheet 31% 34% is liquidated. The Company’s goal in these distressed Off-balance sheet 69% 66% situations is to hold sufficient cash over time to ensure Total 100% 100% that upon liquidation, the cash held is equivalent to the credit exposure related to any unused tickets. (a) Financial institutions primarily include banks, broker-dealers, There has been some speculation that there will be insurance companies and savings and loan associations. consolidation in the airline industry, both in the United (b) Because charge card products have no preset spending limit, the associated on cardmember receivables is not States and internationally. While the Company would quantifiable. Therefore, the quantified credit amount only includes not expect its merchant relationships to change in the the credit line available on cardmember loans. The unused lines aggregating $264 billion and $213 billion in 2006 and 2005, event of consolidation, it is possible that the Company’s respectively, represent commitments of the Company. co-brand relationships might be affected if one of the (c) U.S. Government and agencies represent the U.S. Government Company’s partners merged with an airline that had a and its agencies, states and municipalities, and quasi- government agencies. different co-brand partner. (d) Certain distinctions between categories require management As part of Delta Air Lines’ (Delta) decision to file judgment. for protection under Chapter 11 of the Bankruptcy As disclosed in the table above, at December 31, 2006, the Code, the Company lent funds to Delta as part of Delta’s Company’s most significant concentration of credit risk post-petition, debtor-in-possession financing under the was with individuals, including cardmember receivables Bankruptcy Code. At December 31, 2006, the remaining and loans. These amounts are generally advanced on an principal balance was $176 million and is scheduled to be unsecured basis. However, the Company reviews each repaid on a monthly basis through September 2007. This potential customer’s credit application and evaluates the post-petition facility continues to be structured as an applicant’s financial history and ability and willingness advance against the Company’s obligations to purchase to repay. Delta SkyMiles rewards points under the Company’s co- brand and Membership Rewards agreements. notes to consolidated fi nancial statements american express company

Given the depth of the Company’s business of grant and a term of no more than 10 years. Vesting relationships with Delta through the SkyMiles Credit provisions relating to stock options are as follows: Card and Delta’s participation as a key partner in the Company’s Membership Rewards program, in the event Grant Year Vesting Provisions Delta’s reorganization under the bankruptcy laws is not 2003 and after Generally vest ratably at 25 percent per successful or otherwise negatively impacts the Company’s year beginning with the first anniversary relationship with Delta, the Company’s future financial of the grant date results could be adversely impacted. American Express’ Prior to 1999 and in Generally vest ratably at 33 1/3 percent Delta SkyMiles Credit Card co-brand portfolio accounts 2002 per year beginning with the first anniversary of the grant date for less than 10 percent of the Company’s worldwide 2001–2000–1999 Generally vest ratably at 33 1/3 percent billed business and less than 15 percent of worldwide per year beginning with the second managed lending receivables. anniversary of the grant date

NOTE 15 STOCK PLANS The weighted average remaining contractual life and intrinsic value of the stock options outstanding and STOCK OPTION AND AWARD PROGRAMS excercisable as of December 31, 2006 are as follows: Under the 1998 Incentive Compensation Plan, awards Outstanding Exercisable may be granted to officers and other key individuals who Aggregate intrinsic value perform services for the Company and its participating (millions) $2,245 $2,006 subsidiaries. These awards may be in the form of stock Weighted average contractual options, restricted stock, portfolio grants and similar remaining life (years) 4.6 3.9 awards designed to meet the requirements of non-U.S. jurisdictions. The Company also has options that remain The total intrinsic value of options exercised during outstanding pursuant to a Directors’ Stock Option Plan 2006, 2005, and 2004 was $661 million, $455 million, that expired in 2003. and $633 million, respectively. [ 99 ] For these plans, there were a total of 66 million, 71 The fair value of each option is estimated on the date million, and 68 million common shares available for grant of grant using a Black-Scholes option-pricing model at December 31, 2006, 2005, and 2004, respectively. with the following weighted average assumptions used A summary of stock option and nonvested restricted for grants in 2006, 2005, and 2004: stock award activity as of December 31, 2006, and 2006 2005 2004 changes during the year are presented below: Dividend yield 0.9% 0.9% 0.8%

(Shares in thousands) Stock Options RSAs Expected volatility 23% 24% 30% Weighted Weighted Risk-free interest rate 4.3% 3.6% 2.9% Average Average Expected life of Exercise Grant stock option (years) 4.6 4.5 4.2 Shares Price Shares Price Outstanding at Weighted average fair beginning of year 123,775 $35.75 8,978 $40.77 value per option $12.76 $12.59 $13.27 Granted 6,051 $51.87 3,406 $52.14 The dividend yield reflects the assumption that the Exercised/vested (30,686) $33.89 (3,315) $38.75 current dividend payout will continue with no anticipated Forfeited/expired (1,830) $46.84 (595) $43.99 increases. The expected volatility was based on weighted Outstanding at historical and implied volatilities of the Company’s end of year 97,310 $37.60 8,474 $45.87 common stock price. The expected life of the options is Options exercisable at based on historical data and is not necessarily indicative end of year 81,269 $35.99 of exercise patterns that may occur. As of December 31, 2006, the total unrecognized STOCK OPTIONS compensation cost related to unvested options was $111 Each stock option has an exercise price equal to the million. This cost is expected to be recognized over a market price of the Company’s common stock on the date weighted-average period of 2.2 years. notes to consolidated fi nancial statements american express company

RESTRICTED STOCK AWARDS costs complies with the applicable minimum funding Restricted Stock Awards (RSAs) granted in 2003 and requirements specified by ERISA. The funded status of thereafter, generally vest ratably at 25 percent per year the Plan on an ERISA basis for the years ended 2006 beginning with the first anniversary of the grant date. and 2005 was 113 percent and 114 percent, respectively. RSAs granted prior to 2003 generally cliff vest four The Plan is a cash balance plan and employees’ accrued years after the grant date. The compensation expense benefits are based on notional account balances, which associated with these awards is recognized straight-line are maintained for each individual. Each pay period over the vesting period. these balances are credited with an amount determined As of December 31, 2006, the total unrecognized by an employee’s age, years of service, and compensation compensation cost related to unvested RSAs was $221 as defined by the Plan (primarily base pay, certain million. This cost is expected to be recognized over a incentive pay and commissions, shift differential, and weighted-average period of 2.4 years. The total fair value overtime). Employees’ balances are also credited daily of shares vested during 2006, 2005, and 2004 was $176 with interest at a fixed-rate that is updated each January million, $290 million, and $97 million, respectively. 1 and is based on the average of the daily five-year U.S. Treasury Note yields for the previous October 1 through PORTFOLIO GRANTS November 30. The interest rate varies from a minimum The Company awards Portfolio Grants (PG) that earn of 5 percent to a maximum equal to the lesser of (i) 10 value based on the Company’s financial performance and percent or (ii) the annual maximum interest rate set by the Company’s total shareholder return versus that of the the U.S. government for determining lump-sum values. S&P Financial Index and, beginning with PGs granted Employees and their beneficiaries have the option to in 2006 the S&P 500, over a 3-year performance period, receive annuity payments upon retirement or a lump- subject to certain adjustments. The fair value of the PG sum payout at vested termination, death, disability or is estimated at the date of grant and updated quarterly retirement. and recognized over the performance period. The Company also sponsors an unfunded non- qualified Supplemental Retirement Plan (the SRP) for [ 100 ] SUMMARY OF STOCK PLAN EXPENSE all employees who are compensated over a certain level The components of the Company’s pretax stock- to supplement their pension benefits that are limited by based compensation expense (net of cancellations) and the Internal Revenue Service. The SRP is a supplemental associated income tax benefit are as follows: plan and its terms generally parallel those of the Plan but the SRP’s definition of compensation and payment (Millions) 2006 2005 2004 options differ. Restricted stock awards $153 $144 $112 Most employees outside the United States are covered Stock options 86 84 69 by local retirement plans, some of which are funded, Portfolio grants(a) 55 26 — while other employees receive payments at the time of Other 4 22retirement or termination under applicable labor laws or Total compensation expense, pretax $298 $256 $183 agreements. The Company complies with the minimum Income tax benefit $104 $ 90 $ 64 funding requirements in all countries. (a) 2005 expense represents PG expenses subsequent to July 1, 2005, Effective July 2006, the Company amended its U.K. when as a result of the adoption of SFAS No. 123(R), these awards pension plans. Employees who were participating in the were accounted for as stock-based compensation. PG expense for the first six months of 2005 and for the year ended December 31, 2004 existing defined benefit plans were given a choice between was $23 million and $60 million, respectively. remaining in the plans and making contributions toward their benefits or moving to the new defined contribution plan. Participants who chose to move no longer accrue NOTE 16 RETIREMENT PLANS benefits under these plans as of July 1, 2006. There was no gain or loss as a result of this change and the overall DEFINED BENEFIT PENSION PLANS impact to the projected benefit obligation was minimal. The Company sponsors the American Express The Company measures the obligations and related Retirement Plan (the Plan) for eligible employees in the asset values for its pension and other postretirement United States. The Plan is a noncontributory defined benefit plans as of September 30th of each year. benefit plan which is a qualified plan under the Employee Retirement Income Security Act of 1974, as amended Adoption of SFAS No. 158 (ERISA). Under the Plan, the cost of retirement On September 29, 2006, the FASB issued Statement benefits is measured by length of service, compensation No. 158, “Employers’ Accounting for Defined and other factors. These benefits are funded through Benefit Pension and Other Postretirement Plans” a trust and the Company’s funding of retirement (SFAS No. 158), which amends FASB Statements No. notes to consolidated fi nancial statements american express company

87, 88, 106, and 132(R). This standard requires that Accumulated Other Comprehensive Loss companies record an asset or liability on the Consolidated The following table provides the items comprising the Balance Sheet equal to the over or under funded status amount in accumulated other comprehensive loss as of of their defined benefit and other postretirement benefit December 31: plans effective for fiscal years ending after December 15, 2006. For each plan, the funded status is defined (Millions) 2006 by SFAS No. 158 as the difference between the fair Net actuarial loss $ 474 value of plan assets (for funded plans) and the respective Net prior service cost 13 plan’s projected benefit obligation. The projected Total, pretax effect 487 benefit obligation represents a liability based on the plan Tax impact (156) participant’s service to date and their expected future Total, net of taxes $ 331 compensation at their projected retirement date. Upon The estimated portion of the net actuarial loss and net adoption of SFAS No. 158 and recognition of the funded prior service cost above that is expected to be recognized status on the Company’s Consolidated Balance Sheet, as a component of net periodic benefit cost in 2007 is all previously unrecognized amounts (e.g. unrecognized $40 million and $2 million, respectively. gains or losses and prior service cost) are reflected in accumulated other comprehensive income (loss), net of Plan Assets and Obligations tax, in a one-time cumulative effect adjustment. Any The following tables provide a reconciliation of the future changes in unrecognized gains or losses and prior changes in the plans’ projected benefit obligation, the service cost will be recognized in other comprehensive fair value of assets and the net funded status for all income, net of tax, in the periods in which they occur. plans: Under SFAS No. 158, accounting for plan expense and payments will remain unchanged. Reconciliation of Change in Projected The following table provides the cumulative effect Benefit Obligation of the change in accounting principle with respect to (Millions) 2006 2005 [ 101 ] recognizing the net funded status of defined benefit Projected benefit obligation, October 1 pension plans (the Plan, the SRP and other international prior year $2,392 $2,168 plans) in the Consolidated Balance Sheet as of December Service cost 117 104 31, 2006. Interest cost 127 117 SFAS Post- Benefits paid (55) (59) Pre-SFAS No. 158 SFAS Actuarial loss 33 220 (Millions) No. 158 impact No. 158 Settlements/curtailments (95) (51) Accrued benefit Foreign currency exchange rate changes 147 (107) liability (a) $ (248) $ (39) $(287) Projected benefit obligation at Prepaid benefit asset (b) $ 440 $ (416) 24 September 30, $2,666 $2,392 Net funded status $(263) Accumulated other Reconciliation of Change in Fair Value of Plan Assets comprehensive loss, (Millions) 2006 2005 net of tax (c) $ 21 $ 310 $ 331 Fair value of plan assets, October 1 prior (a) The post-SFAS No. 158 accrued benefit liability represents the year $2,135 $1,975 excess of the projected benefit obligation over the fair value of Actual return on plan assets 232 326 the plan assets for all plans in an underfunded position. The projected benefit obligation and related fair value of plan assets Employer contributions 46 41 for these plans was $1.5 billion and $1.2 billion, respectively, at Benefits paid (55) (59) December 31, 2006 and $2.3 billion and $2.1 billion, respectively, at December 31, 2005. Settlements (95) (51) (b) The post-SFAS No. 158 prepaid benefit asset represents the Foreign currency exchange rate changes 135 (97) excess of the fair value of the plan assets over the projected benefit Fair value of plan assets at obligation for all plans in an overfunded position. September 30, $2,398 $2,135 (c) The post-SFAS No. 158 accumulated other comprehensive loss, net of tax includes the unrecognized gains and losses and unamortized prior service cost related to the plans. See the table below for further information. notes to consolidated fi nancial statements american express company

Net Funded Status benefit cost also includes the estimated interest incurred (Millions) 2006 2005 on the outstanding projected benefit obligation during Funded status at September 30, $(268) $(257) the period. Unrecognized net actuarial loss — 508 A plan amendment that retroactively increases Unrecognized prior service cost — 14 benefits is recognized as an increase to the projected Unrecognized net transition obligation — 1 benefit obligation and a corresponding charge to other Fourth quarter contributions 5 5 comprehensive income, net of tax, at the date of the Net amount recognized at amendment. These prior service costs are amortized as December 31, $(263) $ 271 a component of net periodic pension benefit cost on a straight-line basis over the average remaining service As noted previously, due to the adoption of SFAS No. period of active participants. Actuarial gains and losses 158 as of December 31, 2006, the funded status of $(268) that are not recognized immediately as a component of million, less fourth quarter contributions of $5 million, net periodic pension cost are recognized as increases or is reflected in the December 31, 2006 Consolidated decreases in other comprehensive income, net of tax, Balance Sheet. as they arise. Cumulative net actuarial loss included in The following table provides the amounts recognized accumulated other comprehensive income (loss) which on the Consolidated Balance Sheets as of December 31: exceeds 10 percent of the greater of the projected benefit

(Millions) 2006 2005 obligation and the estimated market value of plan assets are amortized over the average remaining service period Other liabilities $(287) $(203) of active participants. Other assets 24 445 The components of the net periodic pension cost for Minimum pension liability adjustment — 29 all defined benefit plans are as follows: Net amount recognized at December 31, $(263) $ 271 (Millions) 2006 2005 2004 Service cost $ 117 $ 104 $ 99 [ 102 ] Accumulated Benefit Obligation Interest cost 127 117 109 The accumulated benefit obligation is the present value Expected return on plan assets (153) (141) (142) of benefits earned to date by plan participants computed Amortization of: based on current compensation levels as contrasted to Prior service costs 1 1 (4) the projected benefit obligation which is the present Transition obligation — —1 value of benefits earned to date by plan participants Recognized net actuarial loss 40 27 19 based on their expected future compensation at their Settlements/curtailment loss 1 43 projected retirement date. The unvested portion of the Net periodic pension benefit cost $ 133 $ 112 $ 85 accumulated benefit obligation is minimal. The accumulated benefit obligation for all pension Assumptions plans was $2.4 billion at September 30, 2006 and $2.2 The weighted average assumptions used to determine billion at September 30, 2005. benefit obligations were: The accumulated benefit obligation for pension plans where the accumulated benefit obligation exceeds the fair 2006 2005 value of plan assets (primarily unfunded international Discount rates 5.2% 5.1% plans and the SRP) was $234 million (with fair value of Rates of increase in compensation levels 4.1% 4.2% related plan assets of $19 million) as of September 30, The weighted average assumptions used to determine 2006 and $221 million (with fair value of related plan net periodic benefit cost were: assets of $17 million) as of September 30, 2005. 2006 2005 2004 Net Periodic Pension Benefit Cost Discount rates 5.1% 5.5% 5.7% SFAS No. 87, “Employers’ Accounting for Pensions” Rates of increase in compensation levels 4.2% 4.0% 3.9% (SFAS No. 87), provides for the delayed recognition Expected long-term rates of return on of the net actuarial loss and the net prior service cost assets 7.8% 7.8% 7.8% remaining in accumulated other comprehensive income The Company assumes a long-term rate of return on (loss). assets on a weighted average basis. In developing this Service cost is the component of net periodic benefit assumption, management evaluates historical returns cost which represents the current value of benefits earned by an employee during the period. Net periodic notes to consolidated fi nancial statements american express company

on plan assets as well as benchmark information and stock bonus feature. The ISP is a qualified plan including projections of asset class returns and long- under ERISA and covers most employees in the term inflation. United States. Under the terms of the ISP, employees The discount rate assumptions for the Company’s have the option of investing in the American Express material plans (U.S. and U.K.) are determined by using a Company Stock Fund, which invests primarily in the model consisting of bond portfolios that match the cash Company’s common stock, through accumulated payroll flows of the plan’s projected benefit payments. Use of deductions. In addition, at least quarterly the Company the rate produced by this model generates a projected makes automatic cash contributions equal to 1 percent obligation that equals the current market value of a per annum of each qualifying employee’s base salary. portfolio of high-quality zero coupon bonds whose These contributions are invested automatically in the maturity dates and amounts match the timing and American Express Company Stock Fund and can be amount of expected future benefit payments. directed at any time into other ISP investment options. Compensation expense related to the Company’s Asset Allocation contribution to the ISP was $14 million in 2006, and The asset allocation for the Company’s pension plans at $15 million in each of 2005 and 2004; this amount is September 30, 2006 and 2005, and the target allocation included in defined contribution plan expense discussed for 2007, by asset category, are below. Actual allocations below. The ISP held 16 million and 17 million shares generally will be within 5 percent of these targets. of American Express Common Stock at December 31, 2006 and 2005, respectively, beneficially for employees. Target Percentage of In 2006, as part of the amendment to the U.K. Allocation Plan assets at pension plan, the Company established a defined 2007 2006 2005 contribution plan in the U.K. As a result, expense and Equity securities 67% 67% 68% contributions related to defined contribution plans have Debt securities 27% 27% 26% increased in the current year as compared to previous Other 6% 6% 6% periods. [ 103 ] Total 100% 100% 100% The total expense for all defined contribution plans The Company invests in a diversified portfolio to globally was $114 million, $116 million, and $117 ensure that adverse or unexpected results from a security million in 2006, 2005, and 2004, respectively. class will not have a detrimental impact on the entire portfolio. The portfolio is diversified by asset type, OTHER POSTRETIREMENT BENEFITS PLANS risk characteristics and concentration of investments. The Company sponsors unfunded defined Asset classes and ranges considered appropriate for postretirement benefit plans that provide health care investment of each plan’s assets are determined by the and life insurance to certain retired U.S. employees. plan’s investment committee. The asset classes typically include domestic and foreign equities, emerging market Adoption of SFAS No. 158 equities, domestic and foreign investment grade and The following table provides the cumulative effect high-yield bonds and domestic real estate. of the change in accounting principle with respect to recognizing the funded status of the other postretirement Benefit Payments benefit plans in the Consolidated Balance Sheet as of The Company’s retirement plans expect to make benefit December 31, 2006: payments to retirees as follows: SFAS Post- 2012- Pre-SFAS No. 158 SFAS (Millions) No. 158 impact No. 158 (Millions) 2007 2008 2009 2010 2011 2016 Expected payments $142 $144 $151 $157 $168 $1,116 Accrued benefit liability (a) $(229) $ (140) $ (369) Accumulated other In addition, the Company expects to contribute $40 comprehensive loss, net of million to its pension plans in 2007. tax (b) $ — $ 86 $ 86 (a) The accrued benefit liability represents the projected benefit DEFINED CONTRIBUTION RETIREMENT PLANS obligation for all plans as these plans are unfunded. The Company sponsors defined contribution retirement (b) The $86 million adjustment to accumulated other comprehensive loss represents the recognition of the previously unrecognized plans, the principal plan being the Incentive Savings actuarial losses and prior service credit of $140 million, net of $54 Plan (ISP), a 401(k) savings plan with a profit sharing million of deferred taxes. notes to consolidated fi nancial statements american express company

Accumulated Other Comprehensive Loss Net Periodic Benefit Cost The following table provides the items comprising the SFAS No. 106 provides for the delayed recognition of amount in accumulated other comprehensive loss as of the net actuarial loss and the net prior service credit December 31: remaining in accumulated other comprehensive income (loss). (Millions) 2006 The components of the net periodic benefit cost for Net actuarial loss $ 146 all defined postretirement benefit plans accounted for Net prior service credit (6) under SFAS No. 106, are as follows: Total, pretax effect 140 Tax impact (54) (Millions) 2006 2005 2004 Total, net of taxes $86 Service cost $7 $6 $6 Interest cost 21 20 20 The estimated portion of the net actuarial loss and net prior service credit above that is expected to be Amortization of: recognized as a component of net periodic benefit cost Prior service costs (2) (2) (2) in 2007 is $13 million and $(2) million, respectively. Recognized net actuarial loss 14 12 11 Net periodic benefit cost $40 $36 $35 Plan Obligations Assumptions The following table provides a reconciliation of the The weighted average assumptions used to determine changes in the plans’ projected benefit obligation for all benefit obligations were: plans accounted for under SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than 2006 2005 Pensions” (SFAS No. 106): Discount rates 5.7% 5.4% Health care cost increase rate: Reconciliation of Change in Projected Following year 9.5% 10.0% [ 104 ] Benefit Obligation Decreasing to the year 2016 5% 5% (Millions) 2006 2005 Projected benefit obligation, A one percentage-point change in assumed health care October 1 prior year $ 388 $ 357 cost trend rates would have the following effects: Service cost 7 6 Interest cost 21 20 One One percentage- percentage- Benefits paid (28) (25) point point Actuarial (gain) loss (12) 30 increase decrease Projected benefit obligation at (Millions) 2006 2005 2006 2005 September 30, $ 376 $ 388 Increase (Decrease) on benefits The liabilities for the Company’s defined postretirement earned and interest cost for benefit plans recognized in the Consolidated Balance U.S. plans $1 $1 $ (1) $ (1 ) Sheets as of December 31 are included in the table below. Increase (Decrease) on As noted previously, due to the adoption of SFAS No. postretirement benefit obligation for U.S. plans $19 $20 $(17) $(18) 158 as of December 31, 2006, the funded status of $376 million, less fourth quarter contributions of $7 million, Benefit Payments is reflected in the December 31, 2006 Consolidated The Company’s other postretirement benefit plans Balance Sheet. expect to make benefit payments as follows:

Reconciliation of Accrued Benefit Cost and Total 2012- Amount Recognized (Millions) 2007 2008 2009 2010 2011 2016 (Millions) 2006 2005 Expected payments $28 $28 $29 $29 $29 $157 Funded status of the plan $(376) $(388) Unrecognized prior service cost — (8) In addition, the Company expects to contribute $28 Unrecognized net actuarial loss — 172 million to its other postretirement benefit plans Fourth quarter payments 7 6 in 2007. Net amount recognized at December 31, $(369) $(218) notes to consolidated fi nancial statements american express company

NOTE 17 INCOME TAXES of deferred tax assets and liabilities at December 31 are reflected in the following table: The components of income tax provision included in

the Consolidated Statements of Income on income from (Millions) 2006 2005 continuing operations were as follows: Deferred tax assets:

(Millions) 2006 2005 2004 Reserves not yet deducted for tax purposes $2,868 $2,583 Current income tax provision: Employee compensation and benefits 602 274 U.S. federal $ 1,189 $ 864 $ 756 Other 103 105 U.S. state and local 156 97 12 Gross deferred tax assets 3,573 2,962 Non-U.S. 351 385 165 Valuation allowance (51) (55) Total current provision 1,696 1,346 933 Total deferred tax assets 3,522 2,907 Deferred income tax (benefit) provision: Deferred tax liabilities: U.S. federal (68) (236) 308 Depreciation and amortization 582 533 U.S. state and local (36) (46) 7 Deferred revenue 380 345 Non-U.S. 7 (37) (103) Asset securitizations 323 310 Total deferred (benefit) Deferred foreign tax credits 209 61 provision (97) (319) 212 Other 388 388 Total income tax Gross deferred tax liabilities 1,882 1,637 provision $1,599 $ 1,027 $1,145 Net deferred tax assets $1,640 $1,270

A reconciliation of the U.S. federal statutory rate of 35 The valuation allowances at December 31, 2006 and percent to the Company’s effective income tax rate for 2005 relate to deferred tax assets associated with non- 2006, 2005, and 2004 on continuing operations was U.S. operations. as follows: Income taxes paid by the Company (including amounts related to discontinued operations) during [ 105 ] 2006 2005 2004 2006, 2005, and 2004 were approximately $1.4 billion, Combined tax at U.S. statutory rate 35.0% 35.0% 35.0% $1.7 billion, and $1.1 billion, respectively. These amounts Changes in taxes resulting from: include estimated tax payments and cash settlements Tax-preferred investments (3.0) (3.7) (4.2) relating to prior tax years. State and local income taxes 1.5 0.8 0.3 The tax benefit realized for tax deductions from Non-U.S. subsidiaries earnings (3.6) (3.4) (2.4) stock option exercises which are recorded in additional IRS tax settlements (0.3) (4.5) (0.5) paid-in capital totaled $128 million, $234 million, and All other 0.4 — 1.6 $158 million for the years ended December 31, 2006, Effective tax rates 30.0% 24.2% 29.8% 2005, and 2004, respectively. Comprehensive income in the Consolidated Accumulated earnings of certain non-U.S. subsidiaries, Statements of Shareholders’ Equity is presented net of which totaled approximately $3.9 billion at December the following income tax (benefit) provision amounts: 31, 2006, are intended to be permanently reinvested outside the United States. Accordingly, federal taxes, COMPREHENSIVE INCOME COMPONENTS which would have aggregated approximately $856 (Millions) 2006 2005 2004 million, have not been provided on those earnings. Net unrealized securities losses $(27)$(103) $ (92) The Company records a deferred income tax (benefit) Net unrealized derivative (losses) gains (61) 139 152 provision when there are differences between assets Foreign currency translation gains 12 29 11 and liabilities measured for financial reporting and for Minimum pension liability 10 (2) — income tax return purposes. The significant components Net unrealized pension and other postretirement benefit costs (210) —— Income tax (benefit) provision $(276) $63$71 notes to consolidated fi nancial statements american express company

The table above excludes 2005 activity associated with For the years ended December 31, 2006, 2005, and 2004, discontinued operations. Income tax (benefit) provision the dilutive effect of unexercised stock options excludes 6 amounts in 2005 on net unrealized securities gains, million, 14 million, and 13 million options, respectively, net unrealized derivative losses and foreign currency from the computation of EPS because inclusion of the translation adjustments included in accumulated options would have been anti-dilutive. other comprehensive loss associated with discontinued The Subordinated Debentures, discussed in Note 8, operations were $(218) million, $15 million, and $(8) will not affect the EPS computation unless the Company million, respectively. fails to achieve specified performance measures related to the Company’s tangible common equity and NOTE 18 EARNINGS PER COMMON SHARE consolidated net income. The Company will reflect the (EPS) additional common shares in the EPS computation only in the event the Company fails to achieve the specified Basic EPS is computed using the average actual shares performance measures, which the Company believes outstanding during the period. Diluted EPS is basic is unlikely. EPS adjusted for the dilutive effect of stock options, RSAs, and other financial instruments that may be converted into common shares. The computations of NOTE 19 REPORTABLE OPERATING SEGMENTS AND GEOGRAPHIC basic and diluted EPS for the years ended December 31 OPERATIONS are as follows:

(Millions, except per share amounts) 2006 2005 2004 REPORTABLE OPERATING SEGMENTS Numerator: The Company is a leading global payments, network, Income from continuing and travel company that is principally engaged in operations $3,729 $3,221 $2,686 businesses comprising three reportable operating (Loss) Income from discontinued segments: U.S. Card Services, International Card & operations, net of tax (22) 513 830 [ 106 ] Global Commercial Services, and Global Network Cumulative effect of accounting & Merchant Services. The Company considers a change, net of tax — — (71) combination of factors when evaluating the composition Net income $3,707 $3,734 $3,445 of its reportable operating segments and the aggregation Denominator: of operating segments with similar attributes (in all Basic: Weighted-average shares material respects), including economic characteristics, outstanding during the period 1,212 1,233 1,259 products and services offered, classes of customers, Add: Dilutive effect of stock options, restricted stock awards product distribution channels, geographic considerations and other dilutive securities 26 25 26 (primarily U.S. versus international), and regulatory Diluted 1,238 1,258 1,285 environment considerations. Basic EPS: U.S. Card Services issues a wide range of card products Income from continuing and services to consumers and small businesses in the operations $ 3.08 $ 2.61 $ 2.13 U.S., provides consumer travel services to cardmembers (Loss) Income from discontinued and other consumers, and also issues Travelers Cheques operations (0.02) 0.42 0.66 and other prepaid products on a global basis. Cumulative effect of accounting International Card & Global Commercial Services change, net of tax — — (0.05) issues proprietary consumer and small business cards Net income $ 3.06 $ 3.03 $ 2.74 outside the U.S., offers global corporate payment and Diluted EPS: travel-related products and services, and provides Income from continuing international banking services through American operations $ 3.01 $ 2.56 $ 2.09 Express Bank Ltd. (Loss) Income from discontinued Global Network & Merchant Services operates operations (0.02) 0.41 0.65 a global merchant services business, which includes Cumulative effect of accounting signing merchants to accept cards as well as processing change, net of tax — — (0.06) and settling card transactions for those merchants. This Net income $ 2.99 $ 2.97 $ 2.68 segment also offers merchants point-of-sale and back- notes to consolidated fi nancial statements american express company

office products, services, and marketing programs and line of the Company’s small business financing unit, also manages a global general-purpose charge and credit which was sold in 2004. card network, which includes both proprietary cards and The following table presents certain selected financial cards issued under network partnership agreements. information at December 31, 2006, 2005, and 2004 and Corporate & Other consists of corporate functions for each of the years then ended. and auxiliary businesses, including the Company’s publishing business, and for 2004, the leasing product

International Card & Global Global Network & U.S. Card Commercial Merchant Corporate (Millions, except where indicated) Services Services Services & Other Consolidated 2006 Net revenues $13,955 $9,464 $ 3,161 $ 556 $27,136 Cardmember lending finance charge revenue, net of interest 2,477 808 98 74 3,457 Interest expense 799 500 (183) 120 1,236 Pretax income (loss) from continuing operations 3,305 1,148 1,188 (313) 5,328 Income tax provision (benefit) 1,028 263 409 (101) 1,599 Income (Loss) from continuing operations $2,277 $ 885 $ 779 $(212) $3,729 Total assets (billions) $79.7 $57.7$ 4.4$(13.9)$127.9 Total equity (billions) $ 5.0 $ 4.1 $ 1.3 $ 0.1 $ 10.5 2005(a) Net revenues $11,978 $ 8,905 $ 2,747 $ 438 $24,068 Cardmember lending finance charge revenue, net of interest 1,792 684 67 37 2,580 Interest expense 562 389 (145) 114 920 [ 107 ] Pretax income (loss) from continuing operations 2,571 1,093 882 (298) 4,248 Income tax provision (benefit) 755 194 309 (231) 1,027 Income (Loss) from continuing operations $ 1,816 $ 899 $ 573 $ (67) $ 3,221 Total assets (billions) $ 70.3 $ 51.7 $ 4.5 $(12.5) $ 114.0 Total equity (billions) $ 5.1 $ 4.1 $ 1.3 $ — $ 10.5 2004(a) Net revenues $10,442 $ 8,423 $ 2,531 $ 501 $21,897 Cardmember lending finance charge revenue, net of interest 1,370 640 29 185 2,224 Interest expense 453 280 (108) 189 814 Pretax income (loss) from continuing operations 2,160 1,073 911 (313) 3,831 Income tax provision (benefit) 629 319 332 (135) 1,145 Income (Loss) from continuing operations $ 1,531 $ 754 $ 579 $ (178) $ 2,686 Total assets (billions)(b) $ 58.3 $ 47.9 $ 3.9 $ 84.1 $ 194.2 Total equity (billions) $ 4.5 $ 3.8 $ 1.1 $ 6.6 $ 16.0

(a) Amounts for 2005 and 2004 include certain revenue and expense reclassifications, as well as certain revisions to expenses allocated to segments. These items had no impact on the Company’s consolidated pretax income from continuing operations, income tax provision, income from continuing operations or total assets. (b) Corporate & Other total assets for 2004 include $87.1 billion of assets of discontinued operations. notes to consolidated fi nancial statements american express company

Net Revenues services are allocated to each segment based on support The Company allocates discount revenue and certain service activities directly attributable to the segment. other revenues among segments using a transfer Other overhead expenses are allocated to segments pricing methodology. Segments earn discount revenue based on each segment’s level of pretax income. based on the volume of merchant business generated Financing requirements are managed on a consolidated by cardmembers. Within the U.S. Card Services and basis. Funding costs are allocated based on segment International Card & Global Commercial Services funding requirements. segments, discount revenue reflects the issuer component of the overall discount rate; within the Global Network Capital & Merchant Services segment, discount revenue reflects Each business segment is allocated capital based on the network and merchant component of the overall established business model operating requirements, risk discount rate. Net finance charge revenue and net card measures and regulatory capital requirements. Business fees are directly attributable to the segment in which model operating requirements include capital needed to they are reported. support operations and specific balance sheet items. The risk measures include considerations for credit, market Expenses and operational risk. Marketing, promotion, rewards and cardmember services expenses are reflected in each segment based on Income taxes actual expenses incurred, with the exception of brand Income tax provision (benefit) is allocated to each business advertising, which is reflected in the Global Network & segment based on the effective tax rates applicable to Merchant Services segment. various businesses that make up the segment. The provision for losses and benefits includes credit- related expenses and interest credited on investment Assets certificates directly attributable to the segment in which Assets are those that are used or generated exclusively by [ 108 ] they are reported. each segment. Human resources and other operating expenses reflect expenses incurred directly within each segment. In addition, expenses related to the Company’s support

GEOGRAPHIC OPERATIONS The following table presents the Company’s net revenues and pretax income in different geographic regions:

(Millions) United States Europe Asia/Pacific All Other Consolidated 2006 Net revenues $18,376 $3,564 $2,482 $2,714 $ 27,136 Pretax income from continuing operations $4,264 $369 $193 $502 $5,328 2005 Net revenues $15,888 $3,274 $2,333 $2,573 $24,068 Pretax income from continuing operations $ 3,337 $ 289 $ 310 $ 312 $ 4,248 2004 Net revenues $14,490 $3,096 $2,142 $2,169 $ 21,897 Pretax income from continuing operations $ 2,784 $ 293 $ 286 $ 468 $ 3,831 The data in the above table are, in part, based upon internal allocations, which necessarily involve management’s judgment. Therefore, it is not practicable to separate precisely the U.S. and international services. notes to consolidated fi nancial statements american express company

NOTE 20 QUARTERLY FINANCIAL DATA (UNAUDITED)

(Millions, except per share amounts) 2006(a) 2005(a) Quarters Ended 12/31 9/30 6/30 3/31 12/31 9/30 6/30 3/31 Net revenues $7,208 $6,759 $6,850 $6,319 $6,380 $6,028 $6,020 $5,640 Pretax income from continuing operations 1,223 1,338 1,442 1,325 959 1,080 1,121 1,088 Income from continuing operations 925 956 972 876 751 865 860 745 (Loss) Income from discontinued operations, net of tax (3) 11 (27) (3) (6)165153201 Net income 922 967 945 873 745 1,030 1,013 946 Earnings Per Common Share — Basic: Continuing operations $ 0.77 $ 0.79 $ 0.80 $ 0.71 $0.61$0.70$0.70 $ 0.60 Discontinued operations — 0.01 (0.02) — (0.01) 0.14 0.12 0.16 Net income $ 0.77 $ 0.80 $ 0.78 $ 0.71 $0.60$0.84$0.82$0.76 Earnings Per Common Share — Diluted: Continuing operations $ 0.76 $ 0.78 $ 0.78 $ 0.70 $ 0.60 $ 0.69 $ 0.69 $ 0.59 Discontinued operations (0.01) 0.01 (0.02) (0.01) (0.01) 0.13 0.12 0.16 Net income $ 0.75 $ 0.79 $ 0.76 $ 0.69 $ 0.59 $ 0.82 $ 0.81 $ 0.75 Cash dividends declared per common share $ 0.15 $ 0.15 $ 0.15 $ 0.12 $0.12$0.12$0.12$0.12 Common share price(b): High $62.50 $56.19 $54.91 $55.00 $53.06(b)$ 59.50 $ 55.30 $ 58.03 Low $55.00 $49.73 $50.92 $51.05 $46.59(b)$ 52.30 $ 49.51 $50.01

(a) The spin-off of Ameriprise and certain dispositions were completed in 2006 and 2005, and the results of these operations are presented as discontinued operations. Note 2 provides additional information on discontinued operations. (b) The market price per share beginning with the fourth quarter of 2005 reflects the spin-off of Ameriprise as of September 30, 2005. The opening share price on the first trading day after the spin-off was $50.75. [ 109 ]

NOTE 21 RESTRUCTURING CHARGES Charges related to severance obligations are included in human resources. Other exit costs are included in During 2006, the Company recorded restructuring occupancy and equipment, professional services, and other charges of $100 million relating to the Company’s expenses in the Company’s Consolidated Statements of business travel, operations, finance, and technology areas. Income for the years ended December 31, 2006, 2005, These charges principally relate to the consolidation of and 2004. business operations, closing of operating sites, and exiting Cash payments related to remaining restructuring certain businesses, and are comprised of $89 million of liabilities at December 31, 2006, are expected to be severance and $11 million of other exit costs. completed by the end of the first quarter of 2008, except During 2005 and 2004, the Company recorded for certain lease obligations which will continue until restructuring charges of $193 million and $99 million, their expiration in 2010. respectively, relating to consolidation and site closures in the Company’s business travel and international operations, and relocation of certain functions in the Company’s finance and technologies operations. notes to consolidated fi nancial statements american express company

The following table summarizes by category the Company’s restructuring charge activity for each of the Company’s reportable operating segments (U.S. Card Services (USCS), International Card & Global Commercial Services (ICGCS), and Global Network & Merchant Services (GNMS)).

Liability balance at 2006 Restructuring Liability balance at December 31, 2005 charges, net of reversals Cash paid during 2006 Other-non-cash(b) December 31, 2006 (Millions) Severance Other Total Severance(a) Other Total Severance Other Total Severance Other Total Severance Other Total USCS $ 4 $— $ 4 $21 $ 6 $ 27 $ (4) $ (2) $ (6) $— $ (4) $ (4) $21 $— $21 ICGCS 48 4 52 55 5 60 (60) (3) (63) (2) (2) (4) 41 4 45 GNMS 2 — 2 7 — 7 (2) — (2) — — — 7 — 7 Corporate & Other 44 5 49 6 — 6 (30) (5) (35) — — — 20 — 20 Total $98 $ 9 $107 $89 $11 $100 $(96) $(10) $(106) $ (2) $ (6) $ (8) $89 $ 4 $ 93

(a) Reversals of $21 million ($3 million, $3 million, $1 million, and $14 million, primarily due to a greater portion of impacted employees finding other opportunities with the Company than was originally anticipated, were recorded in USCS, ICGCS, GNMS, and Corporate & Other, respectively), for the year ended December 31, 2006. (b) Represents primarily asset write-downs and non-cash severance.

Liability balance at 2005 Restructuring Liability balance at December 31, 2004 charges Cash paid during 2005 December 31, 2005 (Millions) Severance Other Total Severance Other Total Severance Other Total Severance Other Total USCS $— $— $— $ 10 $— $ 10 $ (6) $ — $ (6) $ 4 $— $ 4 ICGCS 63 13 76 88 12 100 (103) (21) (124) 48 4 52 GNMS — — — 3 — 3 (1) — (1) 2 — 2 Corporate & Other 3 — 3 63 17 80 (22) (12) (34) 44 5 49 Total $66 $13 $79 $164 $29 $193 $ (132) $(33) $(165) $98 $ 9 $107

2004 Restructuring Liability balance at [ 110 ] charges Cash paid during 2004 December 31, 2004 (Millions) Severance Other Total Severance Other Total Severance Other Total USCS $— $— $— $— $— $ — $— $— $— ICGCS 71 19 90 (8) (6) (14) 63 13 76 GNMS — — — — — — — — — Corporate & Other 5 4 9 (2) (4) (6) 3 — 3 Total $76 $23 $99 $(10) $(10) $(20) $66 $13 $79

The Company makes decisions on restructuring CUMULATIVE RESTRUCTURING EXPENSE INCURRED TO DATE ON IN-PROGRESS initiatives as the economic environment dictates. As of RESTRUCTURING PROGRAMS December 31, 2006, the total expenses to be incurred for previously approved restructuring activities that were in- (Millions) Severance Other Total progress during 2006 are not expected to be materially USCS $31$6$37 different than the cumulative expenses incurred to date ICGCS 214 36 250 for these programs. The amounts in the table below GNMS 10 — 10 relate to the in-progress restructuring programs initiated Corporate & Other 74 21 95 at various dates between the fourth quarter of 2004 and Total $329 $63 $392 the fourth quarter of 2006. consolidated fi ve-year summary of selected fi nancial data american express company

CONSOLIDATED FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA

(Millions, except per share amounts, percentages, and where indicated) 2006 2005 2004 2003 2002 Operating Results(a) Net revenues $27,136 $24,068$21,897$19,549$18,079 Expenses 21,808 19,820 18,066 16,134 15,058 Income from continuing operations 3,729 3,221 2,686 2,335 2,142 (Loss) Income from discontinued operations (22) 513 830 665 529 Income before cumulative effect of accounting change 3,707 3,734 3,516 3,000 2,671 Net income 3,707 3,734 3,445 2,987 2,671 Return on average equity(b) 34.7% 25.4% 22.0% 20.6% 20.2% Balance Sheet Cash and cash equivalents $ 7,956 $ 7,126 $ 7,808 $ 3,967 $ 3,939 Accounts receivable and accrued interest, net 38,851 35,497 32,398 29,394 27,677 Investments 20,990 21,334 21,675 19,305 20,272 Loans, net 50,248 40,801 34,256 31,706 27,212 Assets of discontinued operations — —87,14180,20769,242 Total assets 127,853 113,960 194,216 175,861 158,299 Customers’ deposits 24,656 24,579 20,107 20,252 17,252 Travelers Cheques outstanding 7,215 7,175 7,287 6,819 6,623 Short-term debt 15,162 15,633 14,316 18,983 21,172 Long-term debt 42,747 30,781 32,676 20,209 16,188 Liabilities of discontinued operations — — 80,675 73,193 63,112 Shareholders’ equity 10,511 10,549 16,020 15,323 13,861 Common Share Statistics Earnings per share: Income from continuing operations: Basic $ 3.08 $ 2.61$2.13$ 1.82$ 1.62 Diluted $ 3.01 $ 2.56$2.09$ 1.80$ 1.61 [ 111 ] (Loss) Income from discontinued operations: Basic $(0.02)$ 0.42$0.66$ 0.52$0.40 Diluted $(0.02)$ 0.41 $ 0.65 $ 0.51 $ 0.40 Cumulative effect of accounting change, net of tax: Basic $—$ — $(0.05)$ (0.01)$ — Diluted $—$ — $(0.06)$ (0.01)$ — Net income: Basic $ 3.06 $ 3.03$2.74$ 2.33$2.02 Diluted $2.99$ 2.97$2.68$ 2.30$ 2.01 Cash dividends declared per share $0.57$ 0.48$0.44$ 0.38$ 0.32 Book value per share $8.76$ 8.50 $ 12.83 $ 11.93 $ 10.63 Market price per share (c): High $62.50$ 59.50 $ 57.05 $ 49.11 $ 44.91 Low $49.73$ 47.01 $ 47.32 $ 30.90 $ 26.55 Close $60.67$ 51.46 $ 56.37 $ 48.23 $ 35.35 Average common shares outstanding for earnings per share: Basic 1,212 1,233 1,259 1,284 1,320 Diluted 1,238 1,258 1,285 1,298 1,330 Shares outstanding at period end 1,199 1,241 1,249 1,284 1,305 Other Statistics Number of employees at period end (thousands): United States 32 29 41 42 41 Outside United States 33 37 37 36 35 Total (d) 65 66 78 78 76 Number of shareholders of record 51,644 55,409 50,394 47,967 51,061

(a) The spin-off of Ameriprise and certain dispositions were completed in 2006 and 2005, and the results of these operations are presented as discontinued operations. Note 2 provides additional information on discontinued operations. (b) Computed on a trailing 12-month basis using total shareholders’ equity as included in the Consolidated Financial Statements prepared in accordance with GAAP. (c) The market price per share beginning with the fourth quarter of 2005 reflects the spin-off of Ameriprise as of September 30, 2005. The opening share price on the first trading day after the spin-off was $50.75. (d) Years prior to 2005 include employees from discontinued operations. EXHIBIT 21 EXHIBIT 21

SUBSIDIARIES OF THE REGISTRANT

Unless otherwise indicated, all of the voting securities of these subsidiaries are directly or indirectly owned by the registrant. Where the name of the subsidiary is indented, the voting securities of such subsidiary are owned directly by the company under which its name is indented.

Jurisdiction of Name of Subsidiary Incorporation

I. American Express Travel Related Services Company, Inc. and its Subsidiaries

American Express Travel Related Services Company, Inc. New York Amex Canada Inc. Canada 1001675 Ontario Inc. Canada 1001674 Ontario Inc. Canada Rexport, Inc. Canada Amex Bank of Canada Canada American Express Company (Mexico) S.A. de C.V. Mexico American Express Servicios Profesionales, S.A. de C.V. Mexico American Express Bank, FSB Utah American Express Receivables Financing Corporation IV LLC Delaware American Express Centurion Bank Utah American Express Centurion Services Corporation Delaware American Express Receivables Financing Corporation III LLC Delaware American Express Credit Corporation Delaware American Express Australia Australia American Express Funding Limited Partnership Scotland American Express Sterling Funding Limited Partnership Scotland American Express Funding (Luxembourg) Sarl Luxembourg American Express Overseas Credit Corporation Limited Jersey, Channel Islands AEOCC Management Company, Ltd. Jersey, Channel Islands American Express Overseas Credit Corporation N.V. Netherlands Antilles Credco Receivables Corp. Delaware Credco Finance, Inc. Delaware American Express Canada Credit Corporation Canada American Express Canada Finance Limited Canada American Express Credit Mexico, LLC Delaware American Express Business Trust No. 232033 Mexico American Express Dutch Capital, LLC Delaware American Express Holdings Netherlands CV Netherlands Antilles Amex Latin American Holdings S.L. Spain Swiss Branch Switzerland American Express Receivables Financing Corporation II Delaware American Express Receivables Financing Corporation V LLC Delaware American Express Limited Delaware American Express Brasil Servicos de Apoio a Travelers Cheques Ltda. Brazil American Express (Malaysia) Sdn. Bhd. Malaysia American Express (Thai) Co. Ltd. (78% owned) Thailand TRS Card International Inc. Delaware American Express de Espana, S.A.U. Spain Amex Asesores de Seguros S.A.U. Spain American Express Entidad Financiera de Credito S.A.U. Spain American Express Foreign Exchange S.A.U. Spain American Express Viajes, S.A.U. Spain

-1- Jurisdiction of Name of Subsidiary Incorporation

American Express International (B) SDN.BHD. Brunei American Express International Holdings, LLC Delaware South Pacific Credit Card Ltd. New Zealand Centurion Finance, Ltd. New Zealand American Express Argentina, S.A. Argentina American Express Holdings (France) SAS France American Express France SAS France American Express Carte France, S.A. France American Express (Paris) SAS France American Express Assurances France American Express Services S.A. France American Express Voyages d'Affaires SAS France American Express Change SAS France American Express International, Inc. Delaware Swisscard AECS AG (50% owned) Switzerland American Express Hungary (c)Plc. Hungary American Express Hungary Travel Related Services Ltd. Hungary American Express Company A/S Norway American Express Denmark A/S Denmark American Express Locazioni Finanziarie, S.r.l. Italy Amex Broker Assicurativo S.r.l. Italy American Express International A.E.(Greece)(99% owned) Greece American Express International (Taiwan), Inc. Taiwan American Express Travel Holdings (Hong Kong) Limited Hong Kong ACS AllCard Service GmbH Germany American Express Bureau de Change S.A. Greece AE Exposure Management Limited Jersey, Channel Islands American Express Poland S.A. Poland Sociedad Internacional de Servicios de Panama, S.A. Panama American Express Business Solutions Co. Ltd. Japan American Express International Services Amex Marketing Japan Limited Delaware American Express (India) Private Ltd. India P.T. American Express Travel Indonesia Indonesia American Express spol. s.r.o. Czech Republic Amex Travel Holding (Japan) Ltd. Japan American Express Nippon Travel Agency, Inc. (55% owned) Japan Amex Pre-Paid Card Y.K. Japan Japan Schenker Rhenus Reisen Verwaltungsgesellschaft mbH Germany American Express Holding AB Resespecialisterna Syd AB Sweden Forsakringsaktiebolaget Viator Sweden Nyman & Schultz AB Sweden Nyman & Schultz Corporate Card AB Sweden Profil Reiser A/S (50% owned) Denmark American Express Corporate Travel AS Norway American Express Corporate Travel A/S Denmark American Express Services India Limited (99.99% owned) India American Express Foreign Exchange Services India Limited India Mackinnons American Express Travel (Private) Limited (30% owned) Sri Lanka American Express Superannuation Pty Limited Australia American Express Wholesale Currency Services Pty. Limited Australia American Express s.r.o. Slovakia American Express Corporate Travel SA Belgium American Express Corporate Travel SA Luxembourg American Express Australia Limited Australia American Express Holdings Limited England

-2- Jurisdiction of Name of Subsidiary Incorporation

American Express Services Europe Limited England & Wales Uvet American Express Corporate Travel S.p. (35% owned) Italy ICONCARD S.p.a. (50% owned) Italy Immobiliare Spagna & Mignanelli S.r.l. (11.42% owned) Italy American Express Travel Related Services Pakistan (Private) Limited Pakistan Amex Life Insurance Marketing, Inc. Taiwan Amex General Insurance Agency, Inc. Taiwan American Express Travel Services Russia Interactive Transaction Solutions Limited England Interactive Transaction Solutions SAS France American Express Publishing Corporation New York Travellers Cheque Associates, Limited (54% owned) England & Wales Bansamex S.A. (50% owned) Spain Amex (Middle East) B.S.C. (50% owned) ASAL (American Express ) (25% owned) Bahrain Amex Oman LLC Oman Amex Egypt Company Egypt American Express Europe Limited Delaware American Express France Holdings I LLC Delaware American Express Management SNC France American Express France Finance SNC France American Express France Holdings II LLC Delaware American Express Insurance Services, Ltd. England & Wales Cardmember Financial Services, Ltd. Jersey, Channel Islands Integrated Travel Systems, Inc. Texas American Express Bank (Mexico), S.A. Mexico American Express Bank Services, S.A. de C.V. Mexico American Express Incentive Services, Inc. Delaware American Express Incentive Services, LLC (49% owned) Missouri American Express International (NZ), Inc. Delaware Cavendish Holdings, Inc. Delaware American Express Business Loan Corporation Utah Golden Bear Travel, Inc. Delaware Travel Impressions, Ltd. Delaware American Express Global Financial Services, Inc. Delaware Sharepeople Group Limited England American Express Insurance Services Europe Limited England Harbor Payments, Inc. Delaware American Express Travel Holdings (M) Company SDN Malaysia Mayflower American Express Travel Services SDN BHD Malaysia Ketera Technologies, Inc. (20% owned) Delaware Amex Card Services Company Delaware Belgium Travel Belgium Alpha Card SCRL (50% owned) Belgium Alpha Card Merchant Services SCRL Belgium South African Travellers Cheque Company (Pty) Ltd. South Africa BOA Finance Company, Ltd. Thailand American Express (China) Ltd. Delaware Farrington American Express Travel Services Limited (37% owned) Hong Kong American Express Insurance Agency of Puerto Rico, Inc. Puerto Rico American Express Travel (Singapore) PTE Ltd. Singapore Eclipse Advisors, Inc. Delaware American Express Marketing & Development Corp. Delaware American Express Insurance Services Agente de Seguros SA de CV Mexico Rosenbluth International (Russia) Ltd. Pennsylvania Rosenbluth Holding Company Russia Rosenbluth International Travel, Ltd. Russia

-3- Jurisdiction of Name of Subsidiary Incorporation

Rosenbluth France Holdings, S.A.R.I. France Rosenbluth International France, S.A.R.I. France Travel Management Investments Ltd. U.K. England Rosenbluth International U.K. Limited England Travel Elite Limited U.K. England Rosenbluth International Hong Kong Ltd. Hong Kong Rosenbluth International Mexico Mexico Rosenbluth International Netherlands B.V. The Netherlands Rosenbluth International B.V. The Netherlands Rosenbluth Germany GMBH Germany Rosenbluth International GMBH Germany Rosenbluth International Reisebur GMBH Austria Rosenbluth International Limited Pennsylvania Rosenbluth International () Ltd. Israel

II. American Express Banking Corp. and its Subsidiaries

American Express Banking Corp. New York American Express Bank Ltd. Connecticut Amex Holdings, Inc. Delaware Amex Cyber International Ltd. British Virgin Islands American Express Bank GmbH Germany American Express FinanzManagement GmbH Germany AEB - International Portfolios Management Company Luxembourg American Express Bank (Switzerland) S.A. Switzerland Amex International Trust (Guernsey) Limited Guernsey, Channel Islands Birdsong Limited Guernsey, Channel Islands Songbird Limited Guernsey, Channel Islands AITG Corporate Secretaries Limited Guernsey, Channel Islands Nominees One Limited Guernsey, Channel Islands Nominees Two Limited Guernsey, Channel Islands American Express Bank Asset Management (Cayman) Limited Cayman Islands American Express Bank Asset Management Company (Luxembourg) S.A. Luxembourg American Express Financial Services (Luxembourg) S.A. Luxembourg Amex International Trust (Cayman) Ltd. Cayman Islands Vesey Limited Cayman Islands Global Nominees Limited Cayman Islands American Express Bank International United States Argentamex S.A. Argentina Amex Nominees (S) Pte Ltd. Singapore Amex Bank Nominee Hong Kong Limited Hong Kong Inveramex Chile Ltda. Chile Amex Immobiliaria Ltda.(99% owned) Chile American Express Bank Ltd., S.A. Argentina American Express Bank Philippines (A Savings Bank), Inc. Philippines AEB Global Trading Investments, Ltd. British Virgin Islands American Express International Deposit Company Cayman Islands The American Express Nominees Limited (98% owned) England & Wales American Express Bank LLC Russia American Express Brasil Representacoes Ltda. Brazil American Express Brasil Servicos Internacionais Ltda. Brazil

-4- Jurisdiction of Name of Subsidiary Incorporation

III. Other Subsidiaries of the Registrant

Ainwick Corporation Texas American Express Asset Management Holdings, Inc. Delaware American Express Investment Management Ltd. Cayman Islands Amexco Insurance Company Vermont checks-on-line, Inc. Delaware National Express Company, Inc. New York The Balcor Company Holdings, Inc. Delaware The Balcor Company Delaware International Capital I Corp. Delaware Acamex Holdings, Inc. Cayman Islands Etisa Holdings Ltd. Cayman Islands Empresas Turisticas Integradas, S.A. de C.V. (95% owned) Mexico International Capital Corp. (Ltd.) Cayman Cayman Islands Rexport, Inc. Delaware Drillamex, Inc. Delaware UMPAWAUG I Corporation Delaware UMPAWAUG II Corporation Delaware UMPAWAUG III Corporation Delaware UMPAWAUG IV Corporation Delaware 56th Street AXP Campus LLC Arizona FRC West Property L.L.C. Arizona

-5-

EXHIBIT 23.1 Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements (Form S-8 No. 2-46918, No. 2-59230, No. 2-64285, No. 2-73954, No. 2-89680, No. 33-01771, No. 33-02980, No. 33-28721, No. 33-33552, No. 33-36442, No. 33-48629, No. 33-62124, No. 33-65008, No. 33-53801, No. 333-12683, No. 333-41779, No. 333-52699, No. 333-73111, No. 333-38238, and No. 333-98479; Form S-3 No. 2-89469, No. 33-43268, No. 33-50997, No. 333- 32525, No. 333-45445, No. 333-47085, No. 333-55761, No. 333-51828, No. 333-113768, No. 333-117835 and No. 333-138032) of American Express Company of our report dated February 26, 2007, relating to the consolidated financial statements, management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in the Annual Report to Shareholders, which is incorporated by reference in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated February 26, 2007, relating to the financial statement schedules, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

New York, New York February 26, 2007

EXHIBIT 23.2 Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in this Annual Report on Form 10-K of American Express Company of our report dated February 18, 2005, except for notes 2 and 19, as to which the date is February 27, 2006, with respect to the consolidated financial statements of American Express Company, included in the 2006 Annual Report to Shareholders of American Express Company (the “Company”).

Our audit also included the financial statement schedules of American Express Company listed in Item 15(a). These schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audit. In our opinion the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.

We also consent to the incorporation by reference in the Registration Statements (Form S-8 No. 2-46918, No. 2-59230, No. 2-64285, No. 2-73954, No. 2-89680, No. 33-01771, No. 33- 02980, No. 33-28721, No. 33-33552, No. 33-36442, No. 33-48629, No. 33-62124, No. 33-65008, No. 33-53801, No. 333-12683, No. 333-41779, No. 333-52699, No. 333-73111, No. 333-38238, and No. 333-98479; Form S-3 No. 2-89469, No. 33-43268, No. 33-50997, No. 333-32525, No. 333-45445, No. 333-47085, No. 333-55761, No. 333-51828, No. 333-113768, No. 333-117835 and No. 333-138032) and in the related Prospectuses of our report dated February 18, 2005, except for notes 2 and 19, as to which the date is February 27, 2006, with respect to the consolidated financial statements of American Express Company incorporated herein by reference, and our report in the preceding paragraph with respect to the financial statement schedules of American Express Company included in this Annual Report on Form 10-K of American Express Company.

/s/ Ernst & Young LLP

New York, New York February 26, 2007

EXHIBIT 31.1 EXHIBIT 31.1

CERTIFICATION

I, Kenneth I. Chenault, certify that:

1. I have reviewed this annual report on Form 10-K of American Express Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a- 15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

Page 1 of 2 (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 28, 2007 /s/ Kenneth I. Chenault Kenneth I. Chenault Chief Executive Officer

Page 2 of 2 EXHIBIT 31.2 EXHIBIT 31.2

CERTIFICATION

I, Daniel T. Henry, certify that:

1. I have reviewed this annual report on Form 10-K of American Express Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a- 15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

Page 1 of 2 (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 28, 2007 /s/ Daniel T. Henry Daniel T. Henry Acting Chief Financial Officer

Page 2 of 2 EXHIBIT 32.1 EXHIBIT 32.1

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report on Form 10-K of American Express Company (the “Company”) for the fiscal year ended December 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Kenneth I. Chenault, as Chief Executive Officer of the Company, and Daniel T. Henry, as acting Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Kenneth I. Chenault Name: Kenneth I. Chenault Title: Chief Executive Officer Date: February 28, 2007

/s/ Daniel T. Henry Name: Daniel T. Henry Title: Acting Chief Financial Officer Date: February 28, 2007

The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and is not being "filed" as part of the Form 10-K or as a separate disclosure document for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to liability under that section. This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act except to the extent that this Exhibit 32.1 is expressly and specifically incorporated by reference in any such filing.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.