þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
New York | 13-4922250 | |
(State or other jurisdiction of incorporation or | (I.R.S. Employer | |
organization) | Identification No.) | |
World Financial Center | ||
200 Vesey Street | ||
New York, New York | 10285 | |
(Address of principal executive offices) | (Zip Code) |
Title of each class | Name of each exchange on which registered | |
Common Shares (par value $0.20 per Share)
|
New York Stock Exchange |
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*
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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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 Ameriprise Financial,
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%.
global card network services;
merchant acquisition and merchant processing for our network partners and
proprietary payments businesses;
charge cards and credit cards for consumers and businesses worldwide;
consumer and small business lending products;
American Express
®
Travelers Cheques and Gift Cards;
travel and business expense management products and services;
business travel and travel management services;
consumer travel services;
point-of-sale and back-office products and services and marketing programs for
merchants;
international banking products; and
magazine publishing.
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*
The use of the term
partner or partnering does not mean or imply a
formal legal partnership.
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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 China 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.
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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.
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focusing on acquiring and retaining high-spending, creditworthy
Cardmembers across multiple groups;
designing Card products with features that appeal to specific customer
segments;
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.
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the Membership Rewards program;
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Global Assist
SM
Hotline;
Emergency Check Cashing Privileges;
Buyers Assurance Plan;
Automatic Flight Insurance;
Car Rental Loss and Damage Insurance;
Premium Baggage Protection;
Purchase Protection
Plan;
Assured Reservations;
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.
Automatic Bill Pay;
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.
the JetBlue Business Card from American Express, which offers small
business owners an automatic OPEN
Savings
®
discount of 5% on JetBlue flights, plus 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
;
the American Express
SimplyCash
SM
Business Card, offering
automatic cash back
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rewards for small business owners through monthly rebates within the Cardmembers
statements. Cardmembers receive 5% cash back each month on gas, office supplies 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.
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.
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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.
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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).
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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.
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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 Italy, and a
small business gold charge Card in France;
new Platinum credit Cards in India and Argentina; and
distribution agreements with Commerzbank to distribute consumer Cards in
Germany; with ABN-AMRO to distribute consumer Cards in the Netherlands; and with
Mitsubishi UFJ Financial Group to distribute consumer Cards in Japan.
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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.
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KENNETH I. CHENAULT -
Chairman and Chief Executive Officer;
Chairman and Chief Executive Officer, American
Express Travel Related Services Company, Inc.
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Executive Vice President, Human Resources
Group President, American Express International & Global Corporate Services
Executive Vice President, Global Advertising and Brand Management and Chief Marketing Officer
Executive Vice President and acting Chief Financial Officer
Group President, Consumer, Small Business and Merchant Services
Executive Vice President and General Counsel
Executive Vice President, Corporate Affairs and Communications
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Executive Vice President and Chief Information Officer
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60
61
62
63
64
65
F-1
F-2
F-3
F-4
F-5
F-6
F-7
F-8
F-9
F-10
E-1
E-2
E-3
E-4
E-5
E-6
ITEM 5.
MARKET FOR COMPANYS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
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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
2,300,000
$
57.14
2,300,000
181,118,123
8,194
$
54.19
N/A
N/A
5,313,700
$
58.85
5,313,700
175,804,423
371,854
$
59.20
N/A
N/A
10,995,100
$
59.85
10,995,100
164,809,323
44,550
$
59.83
N/A
N/A
18,608,800
$
59.23
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 Companys 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.
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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
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.
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AMERICAN EXPRESS COMPANY
February 28, 2007
/s/
Daniel T. Henry
Daniel T. Henry
Executive Vice President and
acting Chief Financial Officer
/s/ Vernon E. Jordan, Jr.
Vernon E. Jordan, Jr.
Director
/s/ Jan Leschly
Jan Leschly
Director
/s/ Richard C. Levin
Richard C. Levin
Director
/s/ Richard A. McGinn
Richard A. McGinn
Director
/s/ Edward D. Miller
Edward D. Miller
Director
/s/ Frank P. Popoff
Frank P. Popoff
Director
/s/ Robert D. Walter
Robert D. Walter
Director
/s/ Ronald A. Williams
Ronald A. Williams
Director
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PUBLIC ACCOUNTING FIRMS
Annual Report
to Shareholders
Form 10-K
(Page)
65
66-67
68
70
71
72
73
74-110
F-2
F-3
F-4
F-5 F-9
F-10
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February 26, 2007
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February 26, 2007
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on
Financial Statement Schedules
of American Express Company:
New York, New York
February 26, 2007
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(millions)
Years Ended December 31,
2006
2005
2004
$
196
$
183
$
220
243
336
427
136
145
105
173
198
186
552
679
718
(356
)
(496
)
(498
)
(187
)
(195
)
(205
)
(169
)
(301
)
(293
)
3,898
3,522
2,979
3,729
3,221
2,686
(22
)
513
830
(71
)
$
3,707
$
3,734
$
3,445
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(millions, except share amounts)
December 31,
2006
2005
$
3
$
3
50
30
11,017
10,955
20
45
33
29
5,067
4,853
388
204
$
16,578
$
16,119
$
73
$
309
5,994
5,242
19
6,067
5,570
240
248
9,638
8,652
1,153
1,788
92
137
27
143
(222
)
(400
)
(417
)
(19
)
(520
)
(139
)
10,511
10,549
$
16,578
$
16,119
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(millions)
Years Ended December 31,
2006
2005
2004
$
3,707
$
3,734
$
3,445
(3,898
)
(3,522
)
(2,979
)
22
(513
)
(830
)
71
3,479
2,474
2,110
1,325
(279
)
(316
)
(76
)
3,031
1,857
3,066
(20
)
(30
)
(10
)
(8
)
(10
)
(200
)
(230
)
(38
)
(10
)
1,750
1
(1,000
)
(498
)
1,203
1,129
1,055
(4,093
)
(1,853
)
(3,578
)
(661
)
(597
)
(535
)
(2,801
)
(1,819
)
(3,057
)
(1
)
3
3
4
$
3
$
3
$
3
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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 Companys 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.
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December 31,
2006
2005
$
$
2,000
749
748
500
499
995
995
400
2,000
1,000
600
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.
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(millions)
Reserve for credit losses,
loans, and
Reserve for doubtful
discounts
accounts receivable
2006
2005
2004
2006
2005
2004
1,097
$
1,084
$
1,121
$
1,008
$
863
$
918
1,699
1,381
1,188
1,296
1,563
(a)
1,213
(a)
212
148
94
(1,739
)
(1,516
)
(1,319
)
(1,281
)
(1,418
)
(1,268
)
$
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.
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3.1
Companys Restated Certificate of Incorporation (incorporated by reference to Exhibit 4.1 of
the Companys Registration Statement on Form S-3, dated July 31, 1997 (Commission File No.
333-32525)).
3.2
Companys Certificate of Amendment of the Certificate of Incorporation (incorporated by
reference to Exhibit 3.1 of the Companys Quarterly Report on Form 10-Q (Commission File No.
1-7657) for the quarter ended March 31, 2000).
3.3
Companys By-Laws, as amended through September 27, 2006 (incorporated by reference to
Exhibit 3.1 of the Companys 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 Companys 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 Companys 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 Companys 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 Companys
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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys
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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys Quarterly Report on Form 10-Q (Commission File No. 1-7657)
for the quarter ended September 30, 1994).
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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 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 Companys 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 Companys
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 Companys Annual Report on Form 10-K
(Commission File No. 1-7657) for the year ended December 31, 2001).
*10.31
Amendment 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 Companys
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 Companys 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 Companys 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 Companys Current Report on
Table of Contents
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
Companys Registration Statement on Form S-8, dated December 9, 1997 (Commission File No.
333-41779)).
10.37
American Express Annual Incentive Award Plan (incorporated by reference to Exhibit 10.6 of
the Companys 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 Companys 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 Companys 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
Companys 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 Companys President and Chief Operating Officer (incorporated by reference to
Exhibit 10.2 of the Companys 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 Companys 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
Companys 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
Companys Current Report on Form 8-K (Commission File No. 1-7657), dated October 6, 2005).
Table of Contents
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 10.2 of the
Companys 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 Companys 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.
Table of Contents
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
THE SECURITIES EXCHANGE ACT OF 1934
(Exact name of Company as specified in charter)
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;
(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
(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), 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.
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.
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 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 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 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.
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, 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 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 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
(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 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 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
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 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.
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 choice 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.
EXHIBIT 10.8
AMERICAN EXPRESS COMPANY
1998 INCENTIVE COMPENSATION PLAN
PERFORMANCE GRANT
(ALSO KNOWN AS THE 20__ INCENTIVE AWARD)
TO
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).
(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:
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 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
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 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 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 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:
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.
ROE | Crediting Rate | |
Below Target ROE
|
Moodys A Rate | |
At Target ROE (currently 33%-36%)
|
13% | |
Above Target ROE
|
16% |
ROE | Crediting Rate | |
Below Target ROE
|
Moodys A Rate | |
At Target ROE (currently 33%-36%)
|
9% | |
Above Target ROE
|
11% |
1. | Section 2.19 is hereby amended in its entirety to read as follows: |
2
3
2. | Section 7.02(d)(ii) is hereby deleted in its entirety. |
4
1. | Section 1.6 is hereby amended in its entirety to read as follows: |
2
3
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: |
4
1. | Section (f) of Article VI is amended in its entirety to read as follows: |
2
3
2. | Section (g) of Article VI is hereby deleted in its entirety. |
4
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. |
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 |
[ 30 ]
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[ 111 ]
| Discount revenue, which is the Companys largest revenue source, represents fees charged to merchants when cardmembers use their cards to purchase goods and services on the Companys network; | ||
| Finance charge revenue, which is earned on outstanding balances related to the cardmember lending portfolio; | ||
| Card fees, which are earned for annual membership, and other commissions and fees such as foreign exchange conversion fees and card-related fees and assessments; and | ||
| Securitization income, net which reflects the net earnings related to cardmember loans financed through securitization activities. Refer to the Glossary for further information. |
| Driving growth principally through organic opportunities and related business strategies, as well as joint ventures and selected acquisitions; | ||
| Delivering returns well in excess of the Companys cost of capital; and | ||
| Distributing excess capital to shareholders through dividends and stock repurchases. |
| Earnings per share growth of 12 to 15 percent; | ||
| Revenue growth of at least 8 percent; and | ||
| Return on average equity (ROE) of 33 to 36 percent. |
Years Ended December 31, | Percent | |||||||||||
(Millions, except per share | Increase | |||||||||||
amounts and ratio data) | 2006 | 2005 | (Decrease) | |||||||||
Net revenues
|
$ | 27,136 | $ | 24,068 | 13 | % | ||||||
Expenses
|
$ | 21,808 | $ | 19,820 | 10 | |||||||
Income from continuing operations
|
$ | 3,729 | $ | 3,221 | 16 | |||||||
Net income
|
$ | 3,707 | $ | 3,734 | (1 | ) | ||||||
Earnings per common share from continuing operations diluted
|
$ | 3.01 | $ | 2.56 | 18 | |||||||
Earnings per common share diluted
|
$ | 2.99 | $ | 2.97 | 1 | |||||||
Return on average equity
(a)
|
34.7 | % | 25.4 | % | ||||||||
(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 for the trailing twelve months ending December 31, 2006 and 2005, respectively. |
Effect if Actual Results Differ | ||||
Description | Assumptions/Approach Used | from Assumptions | ||
Reserves for
losses relating to
cardmember loans and
receivables represent
managements estimate
of the losses
inherent in the
Companys outstanding
portfolio of loans
and receivables.
|
Reserves for these losses are primarily based upon models that analyze specific portfolio statistics, including average write-off rates for various stages of receivable aging (i.e., current, 30 days, 60 days, 90 days) over a 24-month period and average bankruptcy and recovery rates. Cardmember loans and receivables are generally written off when they are past due 180 and 360 days, respectively. Also, to a lesser extent, these reserves reflect managements judgment regarding overall reserve adequacy. Management 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 purchasing managers index, bankruptcy filings and the legal and regulatory environment. |
To the extent historical credit
experience is not indicative of future
performance, actual loss experience could
differ significantly from managements
judgments and expectations, resulting in
either higher or lower future provisions
for losses, as applicable.
As of December 31, 2006, an increase in write-offs equivalent to 20 basis points of cardmember loan and receivable balances at such date would increase the provision for losses by approximately $160 million. |
||
Effect if Actual Results Differ | ||||
Description | Assumptions/Approach Used | from Assumptions | ||
The Membership
Rewards program is
the largest
card-based rewards
program in the
industry. Eligible
cardmembers can
earn points for
purchases charged
and many cards
offer the ability
to earn bonus
points for certain
types of purchases.
Membership Rewards
points are
redeemable for a
broad variety of
rewards, including
travel,
entertainment,
retail certificates
and merchandise.
Points have no
expiration date and
there is no limit
on the number of
points a cardmember
may earn. A
majority of
spending by
cardmembers earns
points under this
program. While
cardmember spend,
redemption rates,
and the related
expense have been
increasing, the
Company benefits
through higher
revenues, lower
cardmember
attrition and
credit losses and
more timely
payments.
The Company establishes balance sheet reserves to cover the cost of future reward redemptions for points earned to date. The provision for the cost of Membership Rewards is included in marketing, promotion, rewards and cardmember services. |
The reserve for Membership
Rewards is estimated using models
that analyze historical redemption
statistics and reflect, to a lesser
extent, managements judgment
regarding overall adequacy. The
provision for the cost of
Membership Rewards is based upon
points earned that are expected to
ultimately be redeemed by
cardmembers and the current
weighted-average cost per point of
redemption. The estimated points to
be redeemed are based on many
factors, including past redemption
behavior of cardmembers who have
left the program in the past five
years, card product type, year of
program enrollment, and card spend
level. The weighted-average cost
per point is affected by the mix of
rewards redeemed.
The Company continually evaluates its reserve methodology and assumptions based on developments in redemption patterns, cost per point redeemed, and other factors. |
The balance sheet reserve for
unredeemed points is impacted over
time by enrollment levels, the
number of points earned and
redeemed, the weighted-average cost
per point, redemption choices made
by cardmembers, reward offerings by
partners and other Membership
Rewards program changes. The
calculation is most sensitive to
changes in the estimated ultimate
redemption rate. This rate is based
on the expectation that a large
majority of all points earned will
eventually be redeemed.
As of December 31, 2006, if the global ultimate redemption rate changed by 100 basis points, the balance sheet reserve would change by approximately $175 million. |
||
Effect if Actual Results Differ | ||||||||||||||||
Description | Assumptions/Approach Used | from Assumptions | ||||||||||||||
When the Company securitizes cardmember loans, certain estimates and assumptions are required to determine the fair value of the Companys subordinated retained interests, including an interest-only strip, and gains or losses recorded at the time of sale. | Estimates and assumptions are generally based on projections of finance charges and fees paid related to the securitized assets, expected credit losses, average loan life (i.e., monthly payment rate), the contractual fee to service the securitized assets, and a discount rate applied to the cash flows from the subordinated retained interests which is commensurate with the inherent risk. |
Changes in the estimates and
assumptions used may have an
impact on the Companys gain
or loss calculation and the
valuation of its subordinated
retained interests. Management
believes that the fair value
of the subordinated interest
is most sensitive to changes
in the monthly payment rate,
expected credit losses, and
cash flow discount rate.
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 years fair value of the interest-only strip to immediate 10 percent and 20 percent adverse changes in these assumptions are as follows: |
||||||||||||||
|
||||||||||||||||
|
(Millions, except rates per annum) |
Monthly Payment Rate |
Expected Credit Losses |
Cash
Flows from Interest- only Strips Discounted at |
||||||||||||
|
Assumption | 25.6% | 2.6% | 12.0% | ||||||||||||
|
10% adverse 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. |
SUMMARY OF THE COMPANY'S FINANCIAL PERFORMANCE | ||||||||||||
Years Ended December 31, | ||||||||||||
( Millions, except per share amounts and ratio data) | 2006 | 2005 | 2004 | |||||||||
Net revenues
|
$ | 27,136 | $ | 24,068 | $ | 21,897 | ||||||
Expenses
|
$ | 21,808 | $ | 19,820 | $ | 18,066 | ||||||
Income from continuing operations
|
$ | 3,729 | $ | 3,221 | $ | 2,686 | ||||||
Net income
|
$ | 3,707 | $ | 3,734 | $ | 3,445 | ||||||
Earnings per common share from continuing operations diluted
|
$ | 3.01 | $ | 2.56 | $ | 2.09 | ||||||
Earnings per common share diluted
|
$ | 2.99 | $ | 2.97 | $ | 2.68 | ||||||
Return on average equity
(a)
|
34.7 | % | 25.4 | % | 22.0 | % | ||||||
(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 average shareholders equity for the trailing twelve months ending December 31, 2006, 2005, and 2004, respectively. |
Years Ended December 31, | ||||||||||||
(Billions, except percentages and where indicated) | 2006 | 2005 | 2004 | |||||||||
Card billed business
(a)
:
|
||||||||||||
United States
|
$ | 406.8 | $ | 354.6 | $ | 304.8 | ||||||
Outside the United States
|
154.7 | 129.8 | 111.3 | |||||||||
|
||||||||||||
Total
|
$ | 561.5 | $ | 484.4 | $ | 416.1 | ||||||
|
||||||||||||
Total cards-in-force (millions)
(a)
:
|
||||||||||||
United States
|
48.1 | 43.0 | 39.9 | |||||||||
Outside the United States
|
29.9 | 28.0 | 25.5 | |||||||||
|
||||||||||||
Total
|
78.0 | 71.0 | 65.4 | |||||||||
|
||||||||||||
Basic cards-in-force (millions)
(a)
:
|
||||||||||||
United States
|
37.1 | 32.8 | 30.3 | |||||||||
Outside the United States
|
25.4 | 23.2 | 21.0 | |||||||||
|
||||||||||||
Total
|
62.5 | 56.0 | 51.3 | |||||||||
|
||||||||||||
Average discount rate
(b)
|
2.57 | % | 2.58 | % | 2.61 | % | ||||||
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) 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. |
Years Ended December 31, | ||||||||||||
(Billions, except percentages and where indicated) | 2006 | 2005 | 2004 | |||||||||
Worldwide cardmember receivables:
|
||||||||||||
Total receivables
|
$ | 37.4 | $ | 34.2 | $ | 31.1 | ||||||
90 days past due as a % of total
|
1.8 | % | 1.6 | % | 1.8 | % | ||||||
Loss reserves (millions):
|
$ | 981 | $ | 942 | $ | 806 | ||||||
% of receivables
|
2.6 | % | 2.8 | % | 2.6 | % | ||||||
% of 90 days past due
|
147 | % | 177 | % | 146 | % | ||||||
Net loss ratio as a % of charge volume
|
0.24 | % | 0.26 | % | 0.26 | % | ||||||
Worldwide cardmember lending owned basis
(a)
:
|
||||||||||||
Total loans
|
$ | 43.3 | $ | 33.1 | $ | 26.9 | ||||||
30 days past due as a % of total
|
2.7 | % | 2.5 | % | 2.4 | % | ||||||
Loss reserves (millions):
|
||||||||||||
Beginning balance
|
$ | 996 | $ | 972 | $ | 998 | ||||||
Provision
|
1,507 | 1,227 | 1,016 | |||||||||
Net write offs
|
(1,359 | ) | (1,155 | ) | (1,040 | ) | ||||||
Other
|
27 | (48 | ) | (2 | ) | |||||||
|
||||||||||||
Ending balance
|
$ | 1,171 | $ | 996 | $ | 972 | ||||||
|
||||||||||||
% of loans
|
2.7 | % | 3.0 | % | 3.6 | % | ||||||
% of past due
|
98 | % | 122 | % | 151 | % | ||||||
Average loans
|
$ | 36.5 | $ | 28.3 | $ | 25.9 | ||||||
Net write-off rate
|
3.7 | % | 4.1 | % | 4.0 | % | ||||||
Net finance charge revenue/average loans
|
9.5 | % | 9.1 | % | 8.6 | % | ||||||
Worldwide cardmember lending managed basis
(b)
:
|
||||||||||||
Total loans
|
$ | 63.5 | $ | 54.3 | $ | 47.2 | ||||||
30 days past due as a % of total
|
2.6 | % | 2.4 | % | 2.4 | % | ||||||
Loss reserves (millions):
|
||||||||||||
Beginning balance
|
$ | 1,469 | $ | 1,475 | $ | 1,541 | ||||||
Provision
|
1,991 | 2,097 | 1,931 | |||||||||
Net write offs
|
(1,933 | ) | (2,055 | ) | (1,957 | ) | ||||||
Other
|
95 | (48 | ) | (40 | ) | |||||||
|
||||||||||||
Ending balance
|
$ | 1,622 | $ | 1,469 | $ | 1,475 | ||||||
|
||||||||||||
% of loans
|
2.6 | % | 2.7 | % | 3.1 | % | ||||||
% of past due
|
97 | % | 114 | % | 129 | % | ||||||
Average loans
|
$ | 56.9 | $ | 48.9 | $ | 45.4 | ||||||
Net write-off rate
|
3.4 | % | 4.2 | % | 4.3 | % | ||||||
Net finance charge revenue/average loans
|
9.4 | % | 9.3 | % | 9.0 | % | ||||||
(a) | Owned, a GAAP basis measurement, reflects only cardmember loans included in the Companys Consolidated Balance Sheets. | |
(b) | 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. See the U.S. Card Services segment for additional information on managed basis presentation. |
| $177 million ($155 million after-tax) of gains related to the sales of the Companys card and merchant-related activities in Brazil, Malaysia, and Indonesia; | ||
| $88 million ($40 million after-tax) of gains from the sale of an investment in Egyptian American Bank (EAB); | ||
| $68 million ($42 million after-tax) of gains related to a rebalancing program in the fourth quarter of 2006 to better align the maturity profile of the Travelers Cheque and Gift Card investment portfolio with its business liquidity needs; | ||
| $174 million ($113 million after-tax) of charges associated with certain adjustments made to the Membership Rewards reserve models in the U.S. and outside the U.S.; |
| $154 million ($100 million after-tax) of reengineering costs; and | ||
| a $72 million ($47 million after-tax) reduction in cardmember lending finance charge revenues, net of interest, and securitization income, net related to higher than anticipated cardmember completion of consumer debt repayment programs and certain associated payment waivers. |
| tax benefits of $239 million resulting from the resolution of previous years tax items and the finalization of state tax returns; | ||
| a $113 million ($73 million after-tax) benefit from the recovery of September 11, 2001-related insurance claims; | ||
| $286 million ($186 million after-tax) of reengineering costs; and | ||
| a $49 million ($32 million after-tax) provision to reflect the estimated costs related to Hurricane Katrina. |
| a $115 million ($75 million after-tax) charge reflecting a reconciliation of securitization-related cardmember loans for balances accumulated over the prior five-year period as a result of a computational 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. |
Percentage | ||||||||
Increase | ||||||||
Assuming | ||||||||
No Changes | ||||||||
in Foreign | ||||||||
Percentage | Exchange | |||||||
Increase | Rates | |||||||
Worldwide
(a)
|
||||||||
Billed business
|
16 | % | 15 | % | ||||
Average spending per proprietary basic card
|
7 | 7 | ||||||
Basic cards-in-force
|
12 | |||||||
U.S.
(a)
|
||||||||
Billed business
|
15 | |||||||
Average spending per proprietary basic card
|
6 | |||||||
Basic cards-in-force
|
13 | |||||||
Proprietary consumer card billed business
(b)
|
13 | |||||||
Proprietary small business billed business
(b)
|
16 | |||||||
Proprietary Corporate Services billed business
(c)
|
14 | |||||||
Outside the U.S.
(a)
|
||||||||
Billed business
|
19 | 17 | ||||||
Average spending per proprietary basic card
|
11 | 9 | ||||||
Basic cards-in-force
|
9 | |||||||
Proprietary consumer and small business billed business
(c)
|
13 | 11 | ||||||
Proprietary Corporate Services billed business
(c)
|
19 | 17 | ||||||
(a) | Captions not designated as proprietary include both proprietary and GNS data. | |
(b) | Included in the U.S. Card Services segment. | |
(c) | Included in the International Card & Global Commercial Services segment. |
| Commercial paper, | ||
| Bank notes, customers deposits, institutional CDs and Fed Funds, | ||
| Medium-term notes and senior unsecured debentures, | ||
| Asset securitizations, and | ||
| Long-term committed bank borrowing facilities in selected non-U.S. markets. |
(Billions) | 2006 | 2005 | ||||||
Short-term debt
|
$ | 15.2 | $ | 15.6 | ||||
Long-term debt
|
42.7 | 30.8 | ||||||
|
||||||||
Total debt (GAAP basis)
|
57.9 | 46.4 | ||||||
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 | 2005 | |||||||
Short-term debt percentage of total debt (GAAP basis)
|
26.2 | % | 33.7 | % | ||||
(Billions) | Amount | |||
American Express Company (Parent Company only)
(a)
:
|
||||
Subordinated Debentures
|
$ | 0.8 | ||
Fixed Rate Senior Notes
|
1.0 | |||
American Express Travel Related Services Company, Inc.:
|
||||
Fixed and Floating Rate Medium-Term Notes
|
1.5 | |||
American Express Credit Corporation:
|
||||
Floating Rate Senior Notes
|
6.5 | |||
Fixed and Floating Rate Medium-Term Notes
|
1.9 | |||
American Express Centurion Bank:
|
||||
Floating Rate Medium-Term Notes
|
3.7 | |||
American Express Bank, FSB:
|
||||
Floating Rate Medium-Term Notes
|
3.2 | |||
|
||||
GAAP Basis
|
18.6 | |||
American Express Credit Account Master Trust:
|
||||
Trust Investor Certificates (off-balance sheet)
|
3.5 | |||
|
||||
Managed Basis
|
$ | 22.1 | ||
(a) | The table above excludes the remarketing of the Convertible Senior Debentures to Senior Notes described below. |
Standard | Fitch | |||||
Moody's | & Poor's | Ratings | ||||
Short-term
|
P-1 | A-1 | F1 | |||
Senior unsecured
|
A1 | A+ | A+ | |||
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. |
| Credit Risk, | ||
| Market Risk, and | ||
| Operational Risk. |
| Independence of risk management oversight; | ||
| Management of risk exposures through Board-approved risk limits; and | ||
| Ultimate business ownership for risk-return decision making. |
| The senior risk leaders responsible for enterprise-wide market and operational risk; | ||
| The enterprise-wide leaders of compliance, controllership, and information security; and | ||
| The senior risk leaders representing all three operating segments of the Company. |
| Interest rate risk in its card, insurance, and certificate businesses; and | ||
| Foreign exchange risk in its international operations. |
Years Ended December 31, | ||||||||||||
(Millions) | 2006 | 2005 | 2004 | |||||||||
Net revenues:
|
||||||||||||
Discount revenue, net card fees and other
|
$ | 9,989 | $ | 8,926 | $ | 7,940 | ||||||
Cardmember lending:
|
||||||||||||
Finance charge revenue
|
3,434 | 2,408 | 1,776 | |||||||||
Interest expense
|
957 | 616 | 406 | |||||||||
|
||||||||||||
Net finance charge revenue
|
2,477 | 1,792 | 1,370 | |||||||||
Securitization income:
|
||||||||||||
Excess spread, net (excluding servicing fees)
(a)
|
1,055 | 811 | 671 | |||||||||
Servicing fees
|
407 | 412 | 388 | |||||||||
Gains on sales from securitizations
(b)
|
27 | 37 | 73 | |||||||||
|
||||||||||||
Securitization income, net
|
1,489 | 1,260 | 1,132 | |||||||||
|
||||||||||||
Total net revenues
|
13,955 | 11,978 | 10,442 | |||||||||
|
||||||||||||
Expenses:
|
||||||||||||
Marketing, promotion, rewards and cardmember services
|
4,509 | 3,911 | 3,325 | |||||||||
Provision for losses
|
1,630 | 1,676 | 1,508 | |||||||||
Human resources and other operating expenses
|
4,511 | 3,820 | 3,449 | |||||||||
|
||||||||||||
Total expenses
|
10,650 | 9,407 | 8,282 | |||||||||
|
||||||||||||
Pretax segment income
|
3,305 | 2,571 | 2,160 | |||||||||
Income tax provision
|
1,028 | 755 | 629 | |||||||||
|
||||||||||||
Segment income
|
$ | 2,277 | $ | 1,816 | $ | 1,531 | ||||||
(a) | Excess spread is the net positive cash flow from interest and fee collections allocated to the investors interests after deducting the interest paid on investor certificates, credit losses, contractual servicing fees, and other expenses. | |
(b) | Excludes $83 million and $(104) million in 2006, $144 million and $(118) million in 2005, and $157 million and $(79) million in 2004, of impact from cardmember loan sales and maturities, respectively, reflected in credit provision. |
Years Ended December 31, | ||||||||||||
(Billions, except percentages and where indicated) | 2006 | 2005 | 2004 | |||||||||
Card billed business
|
$ | 333.4 | $ | 292.8 | $ | 251.7 | ||||||
Total cards-in-force (millions)
|
40.7 | 37.5 | 35.0 | |||||||||
Basic cards-in-force (millions)
|
30.1 | 27.7 | 25.7 | |||||||||
Average basic cardmember spending (dollars)
|
$ | 11,521 | $ | 10,996 | $ | 10,118 | ||||||
U.S. Consumer Travel
|
||||||||||||
Travel sales
|
$ | 2.4 | $ | 1.9 | $ | 1.5 | ||||||
Travel commissions and fees/sales
|
8.4 | % | 8.7 | % | 8.9 | % | ||||||
Worldwide Travelers Cheque and prepaid products:
|
||||||||||||
Sales
|
$ | 19.7 | $ | 19.7 | $ | 19.9 | ||||||
Average outstanding
|
$ | 7.0 | $ | 7.1 | $ | 7.0 | ||||||
Average investments
|
$ | 7.7 | $ | 7.8 | $ | 7.5 | ||||||
Investment yield
(a)
|
4.9 | % | 5.1 | % | 5.4 | % | ||||||
Tax equivalent yield managed
(a)
|
7.6 | % | 7.9 | % | 8.4 | % | ||||||
Total segment assets
|
$ | 79.7 | $ | 70.3 | $ | 58.3 | ||||||
Segment capital
|
$ | 5.0 | $ | 5.1 | $ | 4.5 | ||||||
Return on segment capital
(b)
|
46.2 | % | 38.9 | % | 38.5 | % | ||||||
|
||||||||||||
Cardmember receivables:
|
||||||||||||
Total receivables
|
$ | 20.6 | $ | 19.2 | $ | 17.4 | ||||||
90 days past due as a % of total
|
2.1 | % | 1.8 | % | 2.0 | % | ||||||
Net loss ratio as a % of charge volume
|
0.28 | % | 0.30 | % | 0.30 | % | ||||||
|
||||||||||||
Cardmember lending owned basis
(c)
:
|
||||||||||||
Total loans
|
$ | 33.6 | $ | 24.8 | $ | 19.6 | ||||||
30 days past due loans as a % of total
|
2.7 | % | 2.3 | % | 2.4 | % | ||||||
Average loans
|
$ | 27.6 | $ | 21.0 | $ | 17.9 | ||||||
Net write-off rate
|
3.0 | % | 3.9 | % | 3.9 | % | ||||||
Net finance charge revenue/ average loans
|
9.0 | % | 8.5 | % | 7.7 | % | ||||||
|
||||||||||||
Cardmember lending managed basis
(d)
:
|
||||||||||||
Total loans
|
$ | 53.8 | $ | 46.0 | $ | 39.9 | ||||||
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 Companys 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. |
Years Ended December 31, | ||||||||||||
(Millions) | 2006 | 2005 | 2004 | |||||||||
Discount revenue, net card fees and other:
|
||||||||||||
Reported for the period (GAAP)
|
$ | 9,989 | $ | 8,926 | $ | 7,940 | ||||||
Securitization adjustments
(a)
|
199 | 210 | 210 | |||||||||
Tax adjustments
(b)
|
217 | 226 | 228 | |||||||||
|
||||||||||||
Managed discount revenue, net card fees and other
|
$ | 10,405 | $ | 9,362 | $ | 8,378 | ||||||
|
||||||||||||
Net finance charge revenue:
|
||||||||||||
Reported for the period (GAAP)
|
$ | 2,477 | $ | 1,792 | $ | 1,370 | ||||||
Securitization adjustments
(a)
|
1,880 | 1,953 | 1,838 | |||||||||
|
||||||||||||
Managed net finance charge revenue
|
$ | 4,357 | $ | 3,745 | $ | 3,208 | ||||||
|
||||||||||||
Securitization income, net:
|
||||||||||||
Reported for the period (GAAP)
|
$ | 1,489 | $ | 1,260 | $ | 1,132 | ||||||
Securitization adjustments
(a)
|
(1,489 | ) | (1,260 | ) | (1,132 | ) | ||||||
|
||||||||||||
Managed securitization income, net
|
$ | | $ | | $ | | ||||||
|
||||||||||||
Provision for losses:
|
||||||||||||
Reported for the period (GAAP)
|
$ | 1,630 | $ | 1,676 | $ | 1,508 | ||||||
Securitization adjustments
(a)
|
550 | 924 | 942 | |||||||||
|
||||||||||||
Managed provision for losses
|
$ | 2,180 | $ | 2,600 | $ | 2,450 | ||||||
(a) | The managed basis presentation assumes that there have been no off-balance sheet securitization transactions, i.e., all securitized cardmember loans and related income effects are reflected as if they were in the Companys balance sheets and income statements, respectively. For the managed basis presentation, revenue and expenses related to securitized cardmember loans are reflected in net card fees and other, net finance charge revenue, and credit provision. On a managed basis, there is no securitization income, net, as the managed basis presentation assumes no securitization transactions have occurred. | |
(b) | The managed basis presentation reflects an increase to interest income recorded to enable management to evaluate tax exempt investments on a basis consistent with taxable investment securities. On a GAAP basis, interest income associated with tax exempt investments is recorded based on amounts earned. Accordingly, information presented on a managed basis assumes that tax exempt securities earned income at rates as if the securities produced taxable income with a corresponding increase in the provision for income taxes. |
Years Ended December 31, | ||||||||||||
(Millions) | 2006 | 2005 | 2004 | |||||||||
Net revenues:
|
||||||||||||
Discount revenue, net card fees and other
|
$ | 8,656 | $ | 8,221 | $ | 7,783 | ||||||
Cardmember lending:
|
||||||||||||
Finance charge revenue
|
1,240 | 1,035 | 907 | |||||||||
Interest expense
|
432 | 351 | 267 | |||||||||
|
||||||||||||
Net finance charge revenue
|
808 | 684 | 640 | |||||||||
|
||||||||||||
Total net revenues
|
9,464 | 8,905 | 8,423 | |||||||||
|
||||||||||||
Expenses:
|
||||||||||||
Marketing, promotion, rewards and cardmember services
|
1,429 | 1,269 | 1,130 | |||||||||
Provision for losses and benefits
|
1,358 | 1,023 | 740 | |||||||||
Human resources and other operating expenses
|
5,529 | 5,520 | 5,480 | |||||||||
|
||||||||||||
Total expenses
|
8,316 | 7,812 | 7,350 | |||||||||
|
||||||||||||
Pretax segment income
|
1,148 | 1,093 | 1,073 | |||||||||
Income tax provision
|
263 | 194 | 319 | |||||||||
|
||||||||||||
Segment income
|
$ | 885 | $ | 899 | $ | 754 | ||||||
Years Ended December 31, | ||||||||||||
(Billions, except percentages and where indicated) | 2006 | 2005 | 2004 | |||||||||
Card billed business
|
$ | 193.1 | $ | 168.5 | $ | 148.6 | ||||||
Total cards-in-force (millions)
(a)
|
22.3 | 22.7 | 21.6 | |||||||||
Basic cards-in-force (millions)
|
17.9 | 18.0 | 17.2 | |||||||||
Average basic cardmember spending (dollars)
|
$ | 10,681 | $ | 9,641 | $ | 8,610 | ||||||
Global Corporate & International Consumer Travel
Travel sales
|
$ | 19.4 | $ | 18.8 | $ | 18.4 | ||||||
Travel commissions and fees/sales
|
8.1 | % | 8.6 | % | 9.0 | % | ||||||
International banking:
|
||||||||||||
Total loans
|
$ | 7.2 | $ | 7.1 | $ | 6.9 | ||||||
Private banking holdings
|
$ | 22.5 | $ | 20.3 | $ | 18.6 | ||||||
Total segment assets
|
$ | 57.7 | $ | 51.7 | $ | 47.9 | ||||||
Segment capital
|
$ | 4.1 | $ | 4.1 | $ | 3.8 | ||||||
Return on segment capital
(b)
|
20.9 | % | 23.2 | % | 21.2 | % | ||||||
|
||||||||||||
Cardmember receivables:
|
||||||||||||
Total receivables
|
$ | 16.3 | $ | 14.5 | $ | 13.7 | ||||||
90 days past due as a % of total
|
1.4 | % | 1.3 | % | 1.5 | % | ||||||
Net loss ratio as a % of charge volume
|
0.18 | % | 0.21 | % | 0.19 | % | ||||||
|
||||||||||||
Cardmember lending:
|
||||||||||||
Total loans
|
$ | 9.7 | $ | 8.3 | $ | 7.3 | ||||||
30 days past due loans as a % of total
|
2.9 | % | 2.8 | % | 2.3 | % | ||||||
Average loans
|
$ | 8.9 | $ | 7.4 | $ | 6.7 | ||||||
Net write-off rate
|
5.9 | % | 4.7 | % | 5.2 | % | ||||||
Net finance charge revenue/average loans
|
9.1 | % | 9.3 | % | 9.6 | % | ||||||
(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 during 2006. | |
(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. |
Years Ended December 31, (Millions) | 2006 | 2005 | 2004 | |||||||||
Net revenues:
|
||||||||||||
Discount revenue, fees and other
|
$ | 3,161 | $ | 2,747 | $ | 2,531 | ||||||
|
||||||||||||
Expenses:
|
||||||||||||
Marketing and promotion
|
518 | 604 | 389 | |||||||||
Provision (benefit) for losses
|
89 | 66 | (2 | ) | ||||||||
Human resources and other operating expenses
|
1,366 | 1,195 | 1,233 | |||||||||
|
||||||||||||
Total expenses
|
1,973 | 1,865 | 1,620 | |||||||||
|
||||||||||||
Pretax segment income
|
1,188 | 882 | 911 | |||||||||
Income tax provision
|
409 | 309 | 332 | |||||||||
|
||||||||||||
Segment income
|
$ | 779 | $ | 573 | $ | 579 | ||||||
Years Ended December 31, | ||||||||||||
(Billions, except percentages and where indicated) | 2006 | 2005 | 2004 | |||||||||
Global Card billed business
(a)
|
$ | 561.5 | $ | 484.4 | $ | 416.1 | ||||||
Global Network & Merchant Services:
|
||||||||||||
Total segment assets
|
$ | 4.4 | $ | 4.5 | $ | 3.9 | ||||||
Segment capital
|
$ | 1.3 | $ | 1.3 | $ | 1.1 | ||||||
Return on segment capital
(b)
|
60.3 | % | 49.2 | % | 56.2 | % | ||||||
Global Network Services
(c)
:
|
||||||||||||
Card billed business
|
$ | 35.4 | $ | 24.0 | $ | 17.7 | ||||||
Total cards-in-force (millions)
(d)
|
15.0 | 10.8 | 8.8 | |||||||||
(a) | Global Card billed business includes activities (including cash advances) related to proprietary cards, cards issued under network partnership agreements, and certain insurance fees charged on proprietary cards. | |
(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) | Billed business and cards-in-force reflect the transfer, effective January 1, 2006, to International Card & Global Commercial Services segment of corporate card accounts in certain emerging markets that had been managed within Global Network Services. | |
(d) | Cards-in-force for 2006 reflect the transfer of 1.3 million proprietary cards in Brazil, and approximately 200,000 proprietary cards-in-force in Malaysia and Indonesia from the International Card & Global Commercial Services segment during second quarter 2006 and third quarter 2006, respectively. |
| Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; | ||
| Provide reasonable assurance that transactions are recorded as necessary to permit 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 | ||
| Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Companys assets that could have a material effect on the financial statements. |
Table of Contents
New York, New York
February 26, 2007
Table of Contents
New York, New York
Table of Contents
AMERICAN EXPRESS COMPANY
Years Ended December 31,
(Millions, except per share amounts)
2006
2005
2004
$
12,978
$
11,489
$
10,126
3,457
2,580
2,224
1,994
2,033
1,909
1,778
1,780
1,795
2,555
2,375
2,200
1,489
1,260
1,132
1,078
1,055
997
1,807
1,496
1,514
27,136
24,068
21,897
6,516
5,841
4,965
5,065
4,829
4,538
935
1,038
833
1,623
1,349
1,130
529
386
301
3,087
2,773
2,264
2,710
2,308
2,141
1,491
1,428
1,353
1,236
920
814
449
457
474
1,254
1,264
1,517
21,808
19,820
18,066
5,328
4,248
3,831
1,599
1,027
1,145
3,729
3,221
2,686
(22
)
513
830
(71
)
$
3,707
$
3,734
$
3,445
$
3.08
$
2.61
$
2.13
(0.02
)
0.42
0.66
(0.05
)
$
3.06
$
3.03
$
2.74
$
3.01
$
2.56
$
2.09
(0.02
)
0.41
0.65
(0.06
)
$
2.99
$
2.97
$
2.68
1,212
1,233
1,259
1,238
1,258
1,285
Table of Contents
AMERICAN EXPRESS COMPANY
December 31,
(Millions, except share data)
2006
2005
$
7,956
$
7,126
36,386
33,216
2,465
2,281
20,990
21,334
42,135
32,108
7,160
7,049
953
1,644
2,448
2,230
7,360
6,972
$
127,853
$
113,960
$
24,656
$
24,579
7,215
7,175
8,764
7,503
6,058
6,872
15,162
15,633
42,747
30,781
12,740
10,868
117,342
103,411
240
248
9,638
8,652
1,153
1,788
92
137
27
143
(222
)
(400
)
(417
)
(19
)
(520
)
(139
)
10,511
10,549
$
127,853
$
113,960
Table of Contents
AMERICAN EXPRESS COMPANY
Years Ended December 31,
(Millions)
2006
2005
2004
$
3,707
$
3,734
$
3,445
22
(513
)
(830
)
71
3,729
3,221
2,686
3,102
2,816
2,399
645
602
600
(524
)
(226
)
934
298
256
183
(309
)
(623
)
(716
)
(483
)
526
302
2,520
1,243
854
35
(111
)
468
(8
)
341
1,433
9,005
8,045
9,143
5,964
3,795
4,884
13,224
7,545
3,348
(18,457
)
(11,824
)
(10,623
)
(15,096
)
(13,012
)
(8,706
)
3,491
5,386
3,888
(4,435
)
(4,463
)
(3,000
)
(134
)
(399
)
(489
)
(861
)
(608
)
(616
)
95
248
252
993
(136
)
1,347
(3,678
)
(1
)
(113
)
(1,895
)
(15,217
)
(17,259
)
(11,610
)
(338
)
5,331
(488
)
4,670
5,728
4,579
(5,554
)
(4,296
)
(3,561
)
(3,017
)
(339
)
(3,453
)
29,545
14,389
19,791
(14,978
)
(14,426
)
(9,449
)
1,203
1,129
1,055
(4,093
)
(1,853
)
(3,578
)
(661
)
(597
)
(535
)
1
1,377
1,815
6,778
6,443
6,176
264
(10
)
42
830
(2,781
)
3,751
7,126
9,907
6,156
$
7,956
$
7,126
$
9,907
Table of Contents
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
$
15,323
$
257
$
6,081
$
192
$
8,793
3,445
3,445
(171
)
(171
)
6
6
298
298
(66
)
(66
)
(1
)
(1
)
3,511
(3,578
)
(14
)
(338
)
(3,226
)
1,320
7
1,573
(260
)
(556
)
(556
)
16,020
250
7,316
258
8,196
3,734
3,734
(607
)
(607
)
319
319
(44
)
(44
)
(81
)
(81
)
(2
)
(2
)
3,319
(7,746
)
18
(7,764
)
(1,853
)
(7
)
(209
)
(1,637
)
1,405
5
1,545
(145
)
(596
)
(596
)
10,549
248
8,652
(139
)
1,788
3,707
3,707
(45
)
(45
)
42
42
(158
)
(158
)
178
178
(2
)
(2
)
3,722
(396
)
(396
)
(4,093
)
(15
)
(534
)
(3,544
)
147
147
1,274
7
1,373
(106
)
(692
)
(692
)
$
10,511
$
240
$
9,638
$
(520
)
$
1,153
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AMERICAN EXPRESS COMPANY
Table of Contents
AMERICAN EXPRESS COMPANY
(Millions)
2006
2005
$
1,252
$
1,176
(145
)
(123
)
(120
)
(124
)
$
987
$
929
Table of Contents
AMERICAN EXPRESS COMPANY
Table of Contents
AMERICAN EXPRESS COMPANY
(Millions, except per share amounts)
2005
2004
$
3,734
$
3,445
208
185
(217
)
(369
)
$
3,725
$
3,261
$
3.03
$
2.74
$
3.02
$
2.59
$
2.97
$
2.68
$
2.96
$
2.54
(a)
Includes $27 million and $28 million for 2005 and 2004, respectively, related to Ameriprise.
(b)
Includes $(28) million and $(67) million for 2005 and 2004, respectively, related to Ameriprise.
Table of Contents
AMERICAN EXPRESS COMPANY
Table of Contents
AMERICAN EXPRESS COMPANY
Table of Contents
AMERICAN EXPRESS COMPANY
Table of Contents
AMERICAN EXPRESS COMPANY
Table of Contents
AMERICAN EXPRESS COMPANY
FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement No. 109 (FIN 48), is an interpretation that clarifies the
accounting for tax positions accounted for under FASB Statement No. 109, Accounting for
Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of benefits associated with tax positions
taken or expected to be taken in a tax return. For any amount of those benefits to be
recognized, a tax position must be more-likely-than-not to be sustained upon examination by
taxing authorities based on the technical merits of the position. The amount of
benefit recognized is based on the Companys assertion of
the most likely outcome resulting from an examination. FIN 48 is applicable to all tax positions as
of January 1, 2007. The initial effect of adoption will be reflected in first quarter of 2007 as a
cumulative effect adjustment to income taxes payable (in other liabilities) and retained earnings.
Subsequent to the adoption of FIN 48, all increases and decreases in the Companys estimated
recognizable tax benefits will be recorded as a benefit/provision for income taxes.
SFAS No. 157, Fair Value Measurements (SFAS No. 157), establishes a framework for
measuring fair value and applies broadly to financial and non-financial assets and liabilities
measured at fair value under existing authoritative accounting pronouncements. SFAS No. 157
establishes a fair value hierarchy that prioritizes inputs to valuation techniques used for
financial instruments without active markets and for non-financial assets and
Table of Contents
AMERICAN EXPRESS COMPANY
SFAS No. 159, The Fair Value Option for Financial Assets and Financial
LiabilitiesIncluding an amendment of FASB Statement No. 115 (SFAS No. 159), provides
companies with an option to report selected financial assets and liabilities at fair value.
SFAS No. 159 is effective as of the first quarter of 2008.
(Millions)
2006
2005
2004
$
9
$
5,813
$
7,161
$
(68
)
$
690
$
1,120
(46
)
177
290
$
(22
)
$
513
$
830
(Millions)
2006
2005
$
6,863
$
7,120
5,077
5,033
3,791
3,838
2,512
3,202
680
716
1,772
1,194
20,695
21,103
295
231
$
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.
Table of Contents
AMERICAN EXPRESS COMPANY
2006
2005
Gross
Gross
Gross
Gross
Unrealized
Unrealized
Fair
Unrealized
Unrealized
Fair
(Millions)
Cost
Gains
Losses
Value
Cost
Gains
Losses
Value
$
6,678
$
195
$
(10
)
$
6,863
$
6,832
$
293
$
(5
)
$
7,120
5,082
10
(15
)
5,077
5,080
1
(48
)
5,033
3,858
8
(75
)
3,791
3,900
13
(75
)
3,838
2,539
17
(44
)
2,512
3,170
79
(47
)
3,202
688
3
(11
)
680
718
7
(9
)
716
1,773
3
(4
)
1,772
1,184
10
1,194
$
20,618
$
236
$
(159
)
$
20,695
$
20,884
$
403
$
(184
)
$
21,103
(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
$
818
$
(9
)
$
23
$
(1
)
$
841
$
(10
)
1,522
(3
)
1,537
(12
)
3,059
(15
)
345
(2
)
2,518
(73
)
2,863
(75
)
441
(5
)
1,511
(39
)
1,952
(44
)
269
(1
)
174
(10
)
443
(11
)
191
(4
)
16
207
(4
)
$
3,586
$
(24
)
$
5,779
$
(135
)
$
9,365
$
(159
)
(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
$
392
$
(4
)
$
19
$
(1
)
$
411
$
(5
)
1,716
(17
)
2,893
(31
)
4,609
(48
)
1,803
(31
)
1,298
(44
)
3,101
(75
)
750
(15
)
821
(32
)
1,571
(47
)
283
(2
)
58
(7
)
341
(9
)
10
6
16
$
4,954
$
(69
)
$
5,095
$
(115
)
$
10,049
$
(184
)
Table of Contents
AMERICAN EXPRESS COMPANY
(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
618
$
3,586
$
(24
)
554
$
5,734
$
(128
)
1,172
$
9,320
$
(152
)
123
66
45
(7
)
189
45
(7
)
741
$
3,586
$
(24
)
620
$
5,779
$
(135
)
1,361
$
9,365
$
(159
)
(Millions, net of tax)
2006
2005
2004
$
(17
)
$
(187
)
$
(83
)
(75
)
(11
)
(35
)
47
(18
)
(53
)
$
(45
)
$
(216
)
$
(171
)
Fair
(Millions)
Cost
Value
$
3,324
$
3,314
6,705
6,689
788
797
5,895
6,054
16,712
16,854
3,858
3,791
48
50
$
20,618
$
20,695
Table of Contents
AMERICAN EXPRESS COMPANY
(Millions)
2006
2005
2004
$
117
$
21
$
23
(1
)
(4
)
(1
)
(10
)
$
116
$
17
$
12
(a)
Includes $68 million of gains related to a rebalancing program
in the fourth quarter of 2006 to better align the maturity
profile of the Travelers Cheque and Gift Card investment
portfolio with its business liquidity needs.
(Billions)
2006
2005
$
18
$
12
$
6
$
4
$
13
$
8
(Millions)
2006
2005
$
43,306
$
33,104
4,734
4,822
2,470
2,268
20
23
7,224
7,113
987
1,681
51,517
41,898
1,269
1,097
$
50,248
$
40,801
(Millions)
2006
2005
2004
$
1,097
$
1,084
$
1,121
1,623
1,349
1,130
76
32
58
1,699
1,381
1,188
(1,635
)
(1,449
)
(1,205
)
(104
)
(67
)
(114
)
(1,739
)
(1,516
)
(1,319
)
187
124
49
25
24
45
212
148
94
$
1,269
$
1,097
$
1,084
Table of Contents
AMERICAN EXPRESS COMPANY
(Millions)
2006
2005
$
136
$
20
104
270
$
240
$
290
$
72
$
15
$
301
$
121
$
3
$
(Millions)
2006
2005
$
28,854
$
24,720
5,932
3,862
(202
)
272
$
34,584
$
28,854
$
21,175
$
20,275
3,500
5,400
(4,505
)
(4,500
)
$
20,170
$
21,175
$
7,679
$
4,445
(3,500
)
(5,400
)
4,505
4,500
5,932
3,862
(202
)
272
$
14,414
$
7,679
(Millions)
2006
2005
$
266
$
209
70
$
266
$
279
(Millions)
2006
2005
2004
$
1,055
$
811
$
671
407
412
388
27
37
73
$
1,489
$
1,260
$
1,132
(a)
Excess spread is the net positive cash flow from interest and
fee collections allocated to the investors interests after
deducting the interest paid on investor certificates, credit
losses, contractual servicing fees, and other expenses.
Table of Contents
AMERICAN EXPRESS COMPANY
2006
2005
4
4
2.60% - 3.37%
3.30% - 3.90%
4.9% - 5.3%
2.6% - 4.8%
12.0%
12.0%
Contractual spread
over LIBOR
ranging from
-0.01% to .90%
Contractual spread
over LIBOR ranging
from .00% to .90%
1.7% - 5.8%
1.7% - 5.8%
Principal
Amount of
Net
Total
Loans 30
Credit
Principal
Days or
Losses
Amount
More Past
During
(Billions)
of Loans
Due
the Year
$
63.5
$
1.7
$
1.9
20.2
0.5
0.6
$
43.3
$
1.2
$
1.3
$
54.3
$
1.3
$
2.1
21.2
0.6
1.0
$
33.1
$
0.7
$
1.1
Cash Flows from
Monthly
Expected
Interest-only
Payment
Credit
Strips
(Millions, except rates per annum)
Rate
Losses
Discounted at
25.6
%
2.6
%
12.0
%
$
(17
)
$
(12
)
$
(0.5
)
$
(33
)
$
(24
)
$
(1.0
)
Table of Contents
AMERICAN EXPRESS COMPANY
(Millions)
2006
2005
$
3,491
$
5,386
$
62,411
$
63,011
$
407
$
412
$
2,517
$
2,194
(Millions)
2006
2005
$
21
$
29
90
83
408
56
519
168
399
51
$
120
$
117
(Billions)
2006
2005
$
9.6
$
9.9
$
1.2
$
1.2
Table of Contents
AMERICAN EXPRESS COMPANY
International
Card &
Global
Global
Network &
U.S. Card
Commercial
Merchant
(Millions)
Services
Services
Services
Total
$
183
$
1,222
$
104
$
1,509
(20
)
(20
)
183
1,202
104
1,489
105
2
107
(33
)
(33
)
12
(79
)
(67
)
$
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.
(Millions)
2006
2005
Gross
Net
Gross
Net
Carrying
Accumulated
Carrying
Carrying
Accumulated
Carrying
Amount
Amortization
Amount
Amount
Amortization
Amount
$
343
$
186
$
157
$
271
$
159
$
112
(Millions)
2007
2008
2009
2010
2011
$
41
$
35
$
27
$
21
$
10
(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
$
5,782
$
5.23
%
$
7,742
$
4.19
%
2,535
210
4.74
%
4.74
%
20072010
3,257
133
4.72
%
4.73
%
20062010
6,100
5.31
%
3,748
4.51
%
745
2.41
%
886
2.86
%
$
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.
Table of Contents
AMERICAN EXPRESS COMPANY
(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
$
$
$
2,000
$
1.85
%
5,244
5.04
%
3,242
4.79
%
750
6.80
%
2,000
500
4.95
%
4.98
%
2011
500
3.63
%
19,037
4,248
5.10
%
5.10
%
20082015
13,600
6,350
4.48
%
2.99
%
20062015
2,753
916
6.69
%
6.49
%
20072010
3,329
3,028
5.25
%
5.12
%
20062010
7,541
1,300
5.33
%
5.34
%
20072009
4,342
1,000
4.44
%
4.31
%
20062009
4,000
300
5.38
%
5.27
%
2007
2,350
1,000
4.39
%
4.18
%
20062007
1,116
5.38
%
1,116
4.42
%
84
5.66
%
84
4.70
%
222
69
6.83
%
7.59
%
2007
218
105
5.77
%
6.38
%
20062007
$
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.
Table of Contents
AMERICAN EXPRESS COMPANY
(Millions)
2007
2008
2009
2010
2011
Thereafter
Total
$
749
$
$
500
$
$
400
$
4,345
$
5,994
800
1,200
2,000
3,440
7,313
7,157
2,029
1,453
398
21,790
3,691
1,150
2,700
7,541
800
2,100
1,100
4,000
600
600
1,200
74
43
13
92
222
$
8,754
$
10,606
$
12,270
$
2,629
$
3,053
$
5,435
$
42,747
Table of Contents
AMERICAN EXPRESS COMPANY
(Millions)
2006
2005
2004
1,241
1,249
1,284
(75
)
(34
)
(69
)
2
31
26
34
1,199
1,241
1,249
(Millions)
2006
2005
Assets
Liabilities
Assets
Liabilities
$
64
$
21
$
226
$
5
74
4
97
8
20
20
13
355
303
280
214
30
25
$
427
$
448
$
530
$
354
Table of Contents
AMERICAN EXPRESS COMPANY
(Millions)
2006
2005
2004
$
(2
)
$
3
$
1
$
6
$
(2
)
$
16
$
158
$
44
$
(298
)
$
2
$
$
$
(183
)
$
$
(a)
There were no (losses) gains due to exclusion from the assessment of hedge effectiveness for 2006, 2005, and 2004.
(Millions)
2006
2005
2004
$
42
$
300
$
6
(158
)
(44
)
298
$
(116
)
$
256
$
304
$
(241
)
$
(8
)
$
259
183
$
(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.
Table of Contents
AMERICAN EXPRESS COMPANY
(Millions)
2006
2005
Assets
Liabilities
Assets
Liabilities
$
13
$
3
$
13
$
13
$
12
$
10
$
$
$
330
$
320
$
267
$
226
(a)
2006 and 2005 liabilities include embedded derivatives of $30 million and $25 million, respectively.
Table of Contents
AMERICAN EXPRESS COMPANY
2006
2005
Maximum
Maximum
amount of
amount of
undiscounted
Amount
undiscounted
Amount
future
of related
future
of related
payments
(a)
liability
(b)
payments
(a)
liability
(b)
Type of Guarantee
(Billions)
(Millions)
(Billions)
(Millions)
$
75
$
119
$
95
$
124
2
77
2
82
$
77
$
196
$
97
$
206
(a)
Calculated based on the hypothetical scenario that all claims occur within the next 12 months.
(b)
Included as part of other liabilities on the Companys Consolidated Balance Sheets.
(c)
Includes Credit Card Registry, Merchandise Protection, Account Protection, Merchant Protection and
Baggage Protection. The Company generally has no collateral or other recourse provisions related to
these guarantees.
(d)
Includes contingent consideration obligations as well as guarantees the Company provides through
its international banking business, such as financial letters of credit, performance guarantees and
financial guarantees. The international banking guarantees range in term from three months to one
year. The Company receives a fee related to these guarantees, many of which help facilitate
cross-border transactions. The maximum potential exposure related to the Companys international
banking guarantees at both December 31, 2006 and 2005, was approximately $1 billion for which the
Company held supporting collateral of approximately $940 million at such dates.
(Millions)
$
227
217
187
169
144
1,491
$
2,435
Table of Contents
AMERICAN EXPRESS COMPANY
(Billions)
2006
2005
Carrying
Fair
Carrying
Fair
Value
Value
Value
Value
$
69
$
69
$
65
$
65
$
50
$
50
$
41
$
41
$
67
$
66
$
57
$
57
$
43
$
43
$
31
$
31
Table of Contents
AMERICAN EXPRESS COMPANY
(Billions, except percentages)
2006
2005
$
18.5
$
16.7
17.0
15.6
1.5
1.1
342.9
280.4
78.2
66.6
264.7
213.8
11.9
12.2
11.9
12.2
14.9
14.2
14.8
14.1
0.1
0.1
$
388.2
$
323.5
31
%
34
%
69
%
66
%
100
%
100
%
(a)
Financial institutions primarily include banks, broker-dealers, insurance companies and savings and loan associations.
(b)
Because charge card products have no preset spending limit, the associated credit limit on cardmember receivables is not
quantifiable. Therefore, the quantified credit amount only includes the credit line available on cardmember loans. The
unused lines aggregating $264 billion and $213 billion in 2006 and 2005, respectively, represent commitments of the
Company.
(c)
U.S. Government and agencies represent the U.S. Government and its agencies, states and municipalities, and
quasi-government agencies.
(d)
Certain distinctions between categories require management judgment.
Table of Contents
AMERICAN EXPRESS COMPANY
(Shares in thousands)
Stock Options
RSAs
Weighted
Weighted
Average
Average
Exercise
Grant
Shares
Price
Shares
Price
123,775
$
35.75
8,978
$
40.77
6,051
$
51.87
3,406
$
52.14
(30,686
)
$
33.89
(3,315
)
$
38.75
(1,830
)
$
46.84
(595
)
$
43.99
97,310
$
37.60
8,474
$
45.87
81,269
$
35.99
Grant Year
Vesting Provisions
Generally vest ratably at 25 percent per year beginning with the first anniversary of the grant date
Generally vest ratably at 33 1/3 percent per year beginning with the first anniversary of the grant date
Generally vest ratably at 33 1/3 percent per year beginning with the second anniversary of the grant date
Outstanding
Exercisable
$
2,245
$
2,006
4.6
3.9
2006
2005
2004
0.9
%
0.9
%
0.8
%
23
%
24
%
30
%
4.3
%
3.6
%
2.9
%
4.6
4.5
4.2
$
12.76
$
12.59
$
13.27
Table of Contents
AMERICAN EXPRESS COMPANY
(Millions)
2006
2005
2004
$
153
$
144
$
112
86
84
69
55
26
4
2
2
$
298
$
256
$
183
$
104
$
90
$
64
(a)
2005 expense represents PG expenses
subsequent to July 1, 2005, when as a result of the
adoption of SFAS No. 123(R), these awards were
accounted for as stock-based compensation. PG
expense for the first six months of 2005 and for
the year ended December 31, 2004 was $23 million
and $60 million, respectively.
Table of Contents
AMERICAN EXPRESS COMPANY
SFAS
Post-
Pre-SFAS
No. 158
SFAS
(Millions)
No. 158
impact
No. 158
$
(248
)
$
(39
)
$
(287
)
$
440
$
(416
)
24
$
(263
)
$
21
$
310
$
331
(a)
The post-SFAS No. 158 accrued benefit
liability represents the excess of the projected
benefit obligation over the fair value of the plan
assets for all plans in an underfunded position.
The projected benefit obligation and related fair
value of plan assets for these plans was $1.5
billion and $1.2 billion, respectively, at December
31, 2006 and $2.3 billion and $2.1 billion,
respectively, at December 31, 2005.
(b)
The post-SFAS No. 158 prepaid benefit asset
represents the excess of the fair value of the plan
assets over the projected benefit obligation for
all plans in an overfunded position.
(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.
(Millions)
2006
$
474
13
487
(156
)
$
331
(Millions)
2006
2005
$
2,392
$
2,168
117
104
127
117
(55
)
(59
)
33
220
(95
)
(51
)
147
(107
)
$
2,666
$
2,392
(Millions)
2006
2005
$
2,135
$
1,975
232
326
46
41
(55
)
(59
)
(95
)
(51
)
135
(97
)
$
2,398
$
2,135
Table of Contents
AMERICAN EXPRESS COMPANY
(Millions)
2006
2005
$
(268
)
$
(257
)
508
14
1
5
5
$
(263
)
$
271
(Millions)
2006
2005
$
(287
)
$
(203
)
24
445
29
$
(263
)
$
271
(Millions)
2006
2005
2004
$
117
$
104
$
99
127
117
109
(153
)
(141
)
(142
)
1
1
(4
)
1
40
27
19
1
4
3
$
133
$
112
$
85
2006
2005
5.2
%
5.1
%
4.1
%
4.2
%
2006
2005
2004
5.1
%
5.5
%
5.7
%
4.2
%
4.0
%
3.9
%
`
7.8
%
7.8
%
7.8
%
Table of Contents
AMERICAN EXPRESS COMPANY
Target
Percentage of
Allocation
Plan assets at
2007
2006
2005
67
%
67
%
68
%
27
%
27
%
26
%
6
%
6
%
6
%
100
%
100
%
100
%
2012-
(Millions)
2007
2008
2009
2010
2011
2016
$
142
$
144
$
151
$
157
$
168
$
1,116
SFAS
Post-
Pre-SFAS
No. 158
SFAS
(Millions)
No. 158
impact
No. 158
$
(229
)
$
(140
)
$
(369
)
$
$
86
$
86
(a)
The accrued benefit liability represents the projected benefit obligation for all plans as these plans are unfunded.
(b)
The $86 million adjustment to accumulated other comprehensive loss represents the recognition of the previously
unrecognized actuarial losses and prior service credit of $140 million, net of $54 million of deferred taxes.
Table of Contents
american express company
(Millions)
2006
$
146
(6
)
140
(54
)
$
86
(Millions)
2006
2005
$
388
$
357
7
6
21
20
(28
)
(25
)
(12
)
30
$
376
$
388
(Millions)
2006
2005
$
(376
)
$
(388
)
(8
)
172
7
6
$
(369
)
$
(218
)
(Millions)
2006
2005
2004
$
7
$
6
$
6
21
20
20
(2
)
(2
)
(2
)
14
12
11
$
40
$
36
$
35
2006
2005
5.7
%
5.4
%
9.5
%
10.0
%
5
%
5
%
One
One
percentage-
percentage-
point
point
increase
decrease
(Millions)
2006
2005
2006
2005
$
1
$
1
$
(1
)
$
(1
)
$
19
$
20
$
(17
)
$
(18
)
2012-
(Millions)
2007
2008
2009
2010
2011
2016
$
28
$
28
$
29
$
29
$
29
$
157
Table of Contents
american express company
(Millions)
2006
2005
2004
$
1,189
$
864
$
756
156
97
12
351
385
165
1,696
1,346
933
(68
)
(236
)
308
(36
)
(46
)
7
7
(37
)
(103
)
(97
)
(319
)
212
$
1,599
$
1,027
$
1,145
2006
2005
2004
35.0
%
35.0
%
35.0
%
(3.0
)
(3.7
)
(4.2
)
1.5
0.8
0.3
(3.6
)
(3.4
)
(2.4
)
(0.3
)
(4.5
)
(0.5
)
0.4
1.6
30.0
%
24.2
%
29.8
%
(Millions)
2006
2005
$
2,868
$
2,583
602
274
103
105
3,573
2,962
(51
)
(55
)
3,522
2,907
582
533
380
345
323
310
209
61
388
388
1,882
1,637
$
1,640
$
1,270
(Millions)
2006
2005
2004
$
(27
)
$
(103
)
$
(92
)
(61
)
139
152
12
29
11
10
(2
)
(210
)
$
(276
)
$
63
$
71
Table of Contents
american express company
(Millions, except per share amounts)
2006
2005
2004
$
3,729
$
3,221
$
2,686
(22
)
513
830
(71
)
$
3,707
$
3,734
$
3,445
1,212
1,233
1,259
26
25
26
1,238
1,258
1,285
$
3.08
$
2.61
$
2.13
(0.02
)
0.42
0.66
(0.05
)
$
3.06
$
3.03
$
2.74
$
3.01
$
2.56
$
2.09
(0.02
)
0.41
0.65
(0.06
)
$
2.99
$
2.97
$
2.68
Table of Contents
american express company
International
Card &
Global
Global
Network &
U.S. Card
Commercial
Merchant
Corporate
(Millions, except where indicated)
Services
Services
Services
& Other
Consolidated
$
13,955
$
9,464
$
3,161
$
556
$
27,136
2,477
808
98
74
3,457
799
500
(183
)
120
1,236
3,305
1,148
1,188
(313
)
5,328
1,028
263
409
(101
)
1,599
$
2,277
$
885
$
779
$
(212
)
$
3,729
$
79.7
$
57.7
$
4.4
$
(13.9
)
$
127.9
$
5.0
$
4.1
$
1.3
$
0.1
$
10.5
$
11,978
$
8,905
$
2,747
$
438
$
24,068
1,792
684
67
37
2,580
562
389
(145
)
114
920
2,571
1,093
882
(298
)
4,248
755
194
309
(231
)
1,027
$
1,816
$
899
$
573
$
(67
)
$
3,221
$
70.3
$
51.7
$
4.5
$
(12.5
)
$
114.0
$
5.1
$
4.1
$
1.3
$
$
10.5
$
10,442
$
8,423
$
2,531
$
501
$
21,897
1,370
640
29
185
2,224
453
280
(108
)
189
814
2,160
1,073
911
(313
)
3,831
629
319
332
(135
)
1,145
$
1,531
$
754
$
579
$
(178
)
$
2,686
$
58.3
$
47.9
$
3.9
$
84.1
$
194.2
$
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 Companys
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.
Table of Contents
american express company
(Millions)
United States
Europe
Asia/Pacific
All Other
Consolidated
$
18,376
$
3,564
$
2,482
$
2,714
$
27,136
$
4,264
$
369
$
193
$
502
$
5,328
$
15,888
$
3,274
$
2,333
$
2,573
$
24,068
$
3,337
$
289
$
310
$
312
$
4,248
$
14,490
$
3,096
$
2,142
$
2,169
$
21,897
$
2,784
$
293
$
286
$
468
$
3,831
Table of Contents
american express company
(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
$
7,208
$
6,759
$
6,850
$
6,319
$
6,380
$
6,028
$
6,020
$
5,640
1,223
1,338
1,442
1,325
959
1,080
1,121
1,088
925
956
972
876
751
865
860
745
(3
)
11
(27
)
(3
)
(6
)
165
153
201
922
967
945
873
745
1,030
1,013
946
$
0.77
$
0.79
$
0.80
$
0.71
$
0.61
$
0.70
$
0.70
$
0.60
0.01
(0.02
)
(0.01
)
0.14
0.12
0.16
$
0.77
$
0.80
$
0.78
$
0.71
$
0.60
$
0.84
$
0.82
$
0.76
$
0.76
$
0.78
$
0.78
$
0.70
$
0.60
$
0.69
$
0.69
$
0.59
(0.01
)
0.01
(0.02
)
(0.01
)
(0.01
)
0.13
0.12
0.16
$
0.75
$
0.79
$
0.76
$
0.69
$
0.59
$
0.82
$
0.81
$
0.75
$
0.15
$
0.15
$
0.15
$
0.12
$
0.12
$
0.12
$
0.12
$
0.12
$
62.50
$
56.19
$
54.91
$
55.00
$
53.06
(b)
$
59.50
$
55.30
$
58.03
$
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.
Table of Contents
american express company
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
$
4
$
$
4
$
21
$
6
$
27
$
(4
)
$
(2
)
$
(6
)
$
$
(4
)
$
(4
)
$
21
$
$
21
48
4
52
55
5
60
(60
)
(3
)
(63
)
(2
)
(2
)
(4
)
41
4
45
2
2
7
7
(2
)
(2
)
7
7
44
5
49
6
6
(30
)
(5
)
(35
)
20
20
$
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
$
$
$
$
10
$
$
10
$
(6
)
$
$
(6
)
$
4
$
$
4
63
13
76
88
12
100
(103
)
(21
)
(124
)
48
4
52
3
3
(1
)
(1
)
2
2
3
3
63
17
80
(22
)
(12
)
(34
)
44
5
49
$
66
$
13
$
79
$
164
$
29
$
193
$
(132
)
$
(33
)
$
(165
)
$
98
$
9
$
107
2004 Restructuring
Liability balance at
charges
Cash paid during 2004
December 31, 2004
(Millions)
Severance
Other
Total
Severance
Other
Total
Severance
Other
Total
$
$
$
$
$
$
$
$
$
71
19
90
(8
)
(6
)
(14
)
63
13
76
5
4
9
(2
)
(4
)
(6
)
3
3
$
76
$
23
$
99
$
(10
)
$
(10
)
$
(20
)
$
66
$
13
$
79
(Millions)
Severance
Other
Total
$
31
$
6
$
37
214
36
250
10
10
74
21
95
$
329
$
63
$
392
Table of Contents
(Millions, except per share amounts, percentages, and where indicated)
2006
2005
2004
2003
2002
$
27,136
$
24,068
$
21,897
$
19,549
$
18,079
21,808
19,820
18,066
16,134
15,058
3,729
3,221
2,686
2,335
2,142
(22
)
513
830
665
529
3,707
3,734
3,516
3,000
2,671
3,707
3,734
3,445
2,987
2,671
34.7
%
25.4
%
22.0
%
20.6
%
20.2
%
$
7,956
$
7,126
$
7,808
$
3,967
$
3,939
38,851
35,497
32,398
29,394
27,677
20,990
21,334
21,675
19,305
20,272
50,248
40,801
34,256
31,706
27,212
87,141
80,207
69,242
127,853
113,960
194,216
175,861
158,299
24,656
24,579
20,107
20,252
17,252
7,215
7,175
7,287
6,819
6,623
15,162
15,633
14,316
18,983
21,172
42,747
30,781
32,676
20,209
16,188
80,675
73,193
63,112
10,511
10,549
16,020
15,323
13,861
$
3.08
$
2.61
$
2.13
$
1.82
$
1.62
$
3.01
$
2.56
$
2.09
$
1.80
$
1.61
$
(0.02
)
$
0.42
$
0.66
$
0.52
$
0.40
$
(0.02
)
$
0.41
$
0.65
$
0.51
$
0.40
$
$
$
(0.05
)
$
(0.01
)
$
$
$
$
(0.06
)
$
(0.01
)
$
$
3.06
$
3.03
$
2.74
$
2.33
$
2.02
$
2.99
$
2.97
$
2.68
$
2.30
$
2.01
$
0.57
$
0.48
$
0.44
$
0.38
$
0.32
$
8.76
$
8.50
$
12.83
$
11.93
$
10.63
$
62.50
$
59.50
$
57.05
$
49.11
$
44.91
$
49.73
$
47.01
$
47.32
$
30.90
$
26.55
$
60.67
$
51.46
$
56.37
$
48.23
$
35.35
1,212
1,233
1,259
1,284
1,320
1,238
1,258
1,285
1,298
1,330
1,199
1,241
1,249
1,284
1,305
32
29
41
42
41
33
37
37
36
35
65
66
78
78
76
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
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 Euro 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 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 Russia 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 Sweden 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 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) Bahrain ASAL (American Express Saudi Arabia) (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 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 Austria Rosenbluth International Limited Pennsylvania Rosenbluth International (Israel) 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 |
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 |
-4-=
/s/ Kenneth I. Chenault | ||||
Kenneth I. Chenault | ||||
Chief Executive Officer | ||||
/s/ Daniel T. Henry | ||||
Daniel T. Henry | ||||
Acting Chief Financial Officer | ||||
/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
|