<Page>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2006
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ________ to ________
Commission file number 1-7657
AMERICAN EXPRESS COMPANY
(Exact name of registrant as specified in its charter)
<Table>
New York 13-4922250
- ----------------------------------------------------------- ----------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
World Financial Center, 200 Vesey Street, New York, NY 10285
- ----------------------------------------------------------- -------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 640-2000
-------------------------------
None
- ---------------------------------------------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report.
</Table>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act). (Check
one):
Large accelerated filer /X/ Accelerated filer / / Non-accelerated filer / /
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes / / No /X/
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<Table>
<Caption>
Class Outstanding at April 24, 2006
- ---------------------------------------------------- -----------------------------
Common Shares (par value $.20 per share) 1,233,834,977 shares
</Table>
<Page>
AMERICAN EXPRESS COMPANY
FORM 10-Q
INDEX
<Table>
<Caption>
Page No.
--------
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Statements of Income - Three months ended March
31, 2006 and 2005 1
Consolidated Balance Sheets - March 31, 2006 and December
31, 2005 2
Consolidated Statements of Cash Flows - Three months ended
March 31, 2006 and 2005 3
Notes to Consolidated Financial Statements 4 - 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10 - 24
Item 3. Quantitative and Qualitative Disclosures about Market Risk 25
Item 4. Controls and Procedures 25 - 26
Part II. Other Information:
Item 1. Legal Proceedings 26 - 28
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 29
Item 4. Submission of Matters to a Vote of Security Holders 30
Item 6. Exhibits 30
Signatures 31
Exhibit Index E-1
</Table>
<Page>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Millions, except per share amounts)
(Unaudited)
<Table>
<Caption>
Three Months Ended
March 31,
-----------------------
2006 2005
---------- ----------
Revenues:
Discount revenue $ 2,969 $ 2,639
Cardmember lending net finance charge revenue 729 592
Net card fees 520 498
Travel commissions and fees 418 422
Other commissions and fees 639 558
Securitization income, net 386 316
Other investment and interest income, net 275 261
Other 396 354
---------- ----------
Total 6,332 5,640
---------- ----------
Expenses:
Marketing, promotion, rewards and cardmember services 1,522 1,323
Human resources 1,240 1,187
Provisions for losses and benefits:
Charge card 209 215
Cardmember lending 321 295
Investment certificates and other 138 79
---------- ----------
Total 668 589
Professional services 561 487
Occupancy and equipment 346 336
Interest 279 201
Communications 113 117
Other 278 312
---------- ----------
Total 5,007 4,552
---------- ----------
Pretax income from continuing operations 1,325 1,088
Income tax provision 449 343
---------- ----------
Income from continuing operations 876 745
(Loss) Income from discontinued operations, net of tax (3) 201
---------- ----------
Net income $ 873 $ 946
========== ==========
Earnings per Common Share -- Basic:
Income from continuing operations $ 0.71 $ 0.60
(Loss) Income from discontinued operations - 0.16
---------- ----------
Net income $ 0.71 $ 0.76
========== ==========
Earnings per Common Share -- Diluted:
Income from continuing operations $ 0.70 $ 0.59
(Loss) Income from discontinued operations (0.01) 0.16
---------- ----------
Net income $ 0.69 $ 0.75
========== ==========
Average common shares outstanding for
earnings per common share:
Basic 1,232 1,239
========== ==========
Diluted 1,258 1,264
========== ==========
Cash dividends declared per common share $ 0.12 $ 0.12
========== ==========
</Table>
See Notes to Consolidated Financial Statements.
1
<Page>
AMERICAN EXPRESS COMPANY
CONSOLIDATED BALANCE SHEETS
(Millions, except share data)
(Unaudited)
<Table>
<Caption>
March 31, December 31,
2006 2005
-------------- --------------
Assets
Cash and cash equivalents $ 5,393 $ 7,126
Accounts receivable and accrued interest:
Cardmember receivables, less reserves: 2006, $978; 2005, $942 32,204 33,216
Other receivables, less reserves: 2006, $56; 2005, $66 1,971 2,281
Investments 21,267 21,334
Loans:
Cardmember lending, less reserves: 2006, $1,053; 2005, $996 31,620 32,108
International banking, less reserves: 2006, $79; 2005, $64 7,083 7,049
Other, less reserves: 2006, $30; 2005, $37 1,642 1,644
Land, buildings and equipment - at cost, less accumulated
depreciation: 2006, $2,979; 2005, $2,868 2,220 2,230
Other assets 6,665 6,972
-------------- --------------
Total assets $ 110,065 $ 113,960
============== ==============
Liabilities and Shareholders' Equity
Customers' deposits $ 20,068 $ 24,579
Travelers Cheques outstanding 6,787 7,175
Accounts payable 8,724 7,824
Investment certificate reserves 7,072 6,872
Short-term debt 15,177 15,633
Long-term debt 30,932 30,781
Other liabilities 10,700 10,547
-------------- --------------
Total liabilities 99,460 103,411
-------------- --------------
Shareholders' equity:
Common shares, $.20 par value, authorized 3.6 billion shares;
issued and outstanding 1,233 million shares in 2006 and
1,241 million shares in 2005 247 248
Additional paid-in capital 8,899 8,652
Retained earnings 1,629 1,788
Accumulated other comprehensive income (loss), net of tax:
Net unrealized securities gains 59 137
Net unrealized derivatives gains 153 143
Foreign currency translation adjustments (363) (400)
Minimum pension liability (19) (19)
-------------- --------------
Total accumulated other comprehensive loss (170) (139)
-------------- --------------
Total shareholders' equity 10,605 10,549
-------------- --------------
Total liabilities and shareholders' equity $ 110,065 $ 113,960
============== ==============
</Table>
See Notes to Consolidated Financial Statements.
2
<Page>
AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions)
(Unaudited)
<Table>
<Caption>
Three Months Ended
March 31,
------------------------
Cash Flows from Operating Activities 2006 2005
---------- ----------
Net income $ 873 $ 946
Loss (Income) from discontinued operations, net of tax 3 (201)
---------- ----------
Income from continuing operations 876 745
Adjustments to reconcile income from continuing operations
to net cash provided by operating activities:
Provisions for losses and benefits 656 566
Depreciation and amortization 161 201
Deferred taxes, acquisition costs and other 272 299
Stock-based compensation 80 77
Changes in operating assets and liabilities, net of
effects of acquisitions and dispositions:
Accounts receivable and accrued interest 149 159
Other operating assets (172) 73
Accounts payable and other liabilities 390 (195)
Decrease in Travelers Cheques outstanding (407) (255)
Net cash provided by operating activities attributable to
discontinued operations - 172
---------- ----------
Net cash provided by operating activities 2,005 1,842
---------- ----------
Cash Flows from Investing Activities
Sale of investments 1,622 267
Maturity and redemption of investments 2,906 1,432
Purchase of investments (4,251) (1,436)
Net decrease in cardmember loans/receivables 1,484 1,721
Maturities of cardmember receivable securitizations - (750)
Proceeds from cardmember loan securitizations 1,397 1,196
Maturities of cardmember loan securitizations (1,731) (1,000)
Loan operations and principal collections, net (154) (138)
Purchase of land, buildings and equipment (138) (119)
Sale of land, buildings and equipment 15 123
Dispositions (acquisitions), net of cash sold/acquired 182 (14)
Net cash used in investing activities attributable to discontinued operations - (467)
---------- ----------
Net cash provided by investing activities 1,332 815
---------- ----------
Cash Flows from Financing Activities
Net decrease in customers' deposits (4,613) (713)
Sale of investment certificates 1,533 1,299
Redemption of investment certificates (1,350) (1,040)
Net decrease in debt with maturities of three months or less (2,251) (1,222)
Issuance of debt 5,348 1,554
Principal payments on debt (3,058) (2,937)
Issuance of American Express common shares and other 338 284
Repurchase of American Express common shares (962) (662)
Dividends paid (149) (150)
Net cash provided by financing activities attributable to discontinued
operations - 305
---------- ----------
Net cash used in financing activities (5,164) (3,282)
Effect of exchange rate changes on cash 94 (3)
---------- ----------
Net decrease in cash and cash equivalents (1,733) (628)
Cash and cash equivalents at beginning of period includes cash of
discontinued operations of $2,099 in 2005 7,126 9,907
---------- ----------
Cash and cash equivalents at end of period includes cash of discontinued
operations of $2,109 in 2005 $ 5,393 $ 9,279
========== ==========
</Table>
See Notes to Consolidated Financial Statements.
3
<Page>
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying Consolidated Financial Statements should be read in
conjunction with the financial statements which are incorporated by
reference in the Annual Report on Form 10-K of American Express Company
(the Company) for the year ended December 31, 2005. Certain
reclassifications of prior period amounts have been made to conform to
the current presentation, including reclassifications contained in the
current report on Form 8-K dated April 5, 2006.
The interim financial information in this report has not been audited. In
the opinion of management, all adjustments necessary for a fair statement
of the consolidated financial position and the consolidated results of
operations for the interim periods have been made. All adjustments made
were of a normal, recurring nature. Results of operations reported for
interim periods are not necessarily indicative of results for the entire
year.
On September 30, 2005, the Company completed the spin-off of Ameriprise
Financial, Inc. (Ameriprise), formerly known as American Express
Financial Corporation, the Company's financial planning and financial
services business. In addition, during the third quarter of 2005, the
Company completed certain dispositions including the sale of its tax,
accounting and consulting business, American Express Tax and Business
Services, Inc. (TBS). The operating results and cash flows related to
Ameriprise and certain dispositions (including TBS) have been reflected
as discontinued operations in the Consolidated Financial Statements.
Cardmember lending net finance charge revenue is presented net of
interest expense of $239 million and $178 million for the three months
ended March 31, 2006 and 2005, respectively. Other investment and
interest income is presented net of interest expense of $90 million and
$70 million for the three months ended March 31, 2006 and 2005,
respectively.
The Company had securitized cardmember receivables outstanding totaling
$1.2 billion at March 31, 2006 and December 31, 2005, which were included
in cardmember receivables on the Consolidated Balance Sheets as they did
not qualify for off-balance sheet treatment under Statement of Financial
Accounting Standards (SFAS) No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities";
likewise, an equal amount of debt was included in short-term or
long-term debt, as appropriate.
The Company establishes reserves related to its Membership Rewards
program to cover the cost of future reward redemptions for points earned
to date. The Company continually evaluates its reserve methodology based
on developments in redemption patterns, cost per point redeemed and other
factors, in the U.S. and internationally. Rewards costs for the three
months ended March 31, 2006, reflected a $112 million charge ($73 million
after-tax) related to a higher ultimate redemption rate (URR) assumption
within the U.S. Membership Rewards reserve model to reflect program
redemption trends over the past five years. Prior URR calculations
utilized redemptions since the program inception in 1991.
Recently Issued Accounting Standards
In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain
Hybrid Financial Instruments-an amendment of FASB Statements No. 133 and
140" (SFAS No. 155). This Statement addresses the application of
beneficial interests in securitized financial assets and is effective
January 1, 2007. The Company is currently evaluating the impact of SFAS
No. 155 on the Company's Consolidated Financial Statements.
In March 2006, the FASB issued SFAS No. 156, "Accounting for
Servicing of Financial Assets-an amendment of FASB Statement No. 140"
(SFAS No. 156). This Statement simplifies the accounting for
servicing assets and liabilities and is effective January 1, 2007.
The Company is currently evaluating the impact of SFAS
No. 156 on the Company's Consolidated Financial Statements.
4
<Page>
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. Discontinued Operations
On September 30, 2005, the Company completed the distribution of
Ameriprise common stock to the Company's shareholders in a tax free
transaction for U.S. federal income tax purposes. In addition, during the
third quarter of 2005, the Company completed certain dispositions
including the sale of TBS.
The operating results and cash flows of discontinued operations are
presented separately in the Company's Consolidated Financial Statements
and the notes to the Consolidated Financial Statements have been adjusted
to exclude discontinued operations unless otherwise noted. Summary
operating results of the discontinued operations for the three months
ended March 31, 2006 and 2005 were:
<Table>
<Caption>
Three Months Ended March 31,
----------------------------------
(Millions) 2006 2005
--------------- ---------------
Revenues(a) $ - $ 1,902
=============== ===============
Pretax (loss) income from discontinued operations $ (5) $ 287
Income tax (benefit) provision (2) 86
--------------- ---------------
(Loss) Income from discontinued operations, net of tax $ (3) $ 201
=============== ===============
</Table>
(a) Includes revenues from certain dispositions other than Ameriprise
(principally TBS) of approximately $130 million for three months
ended March 31, 2005.
3. Guarantees
The Company provides cardmember protection plans that cover losses
associated with purchased products, as well as certain other guarantees
that are within the scope of FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (FIN 45). In the hypothetical
scenario that all claims occur within the next 12 months, the aggregate
maximum amount of undiscounted future payments associated with such
guarantees would not exceed $105 billion at March 31, 2006 and $96
billion at December 31, 2005. The total amount of related liability
accrued at March 31, 2006 and December 31, 2005 for such programs was
$200 million and $203 million, respectively, which management believes to
be adequate based on actual experience. The Company generally has no
collateral or other recourse provisions related to these guarantees.
Expenses relating to actual claims under these guarantees were not
material for the three months ended March 31, 2006 and 2005.
The Company also provides various guarantees to its international banking
customers in the ordinary course of business that are also within the
scope of FIN 45, including financial letters of credit, performance
guarantees and financial guarantees. Generally, these guarantees range in
term from three months to one year. The Company receives a fee related to
these guarantees, many of which help to facilitate customer cross-border
transactions. At March 31, 2006, the Company held approximately $932
million of collateral supporting these guarantees. The maximum amount of
undiscounted future payments for these guarantees is approximately $1
billion at March 31, 2006 and December 31, 2005. The total amount of
related liability accrued at March 31, 2006 and December 31, 2005 for
such programs was $3 million.
5
<Page>
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Comprehensive Income
The components of comprehensive income, net of related tax, for the three
months ended March 31, 2006 and 2005 were as follows:
<Table>
<Caption>
Three Months Ended March 31,
----------------------------------
(Millions) 2006 2005
--------------- ---------------
Net income $ 873 $ 946
Change in:
Net unrealized securities gains (78) (511)
Net unrealized derivative gains 10 155
Foreign currency translation adjustments 37 (17)
--------------- ---------------
Total $ 842 $ 573
=============== ===============
</Table>
5. Retirement Plans
The components of the net pension cost included in continuing operations
for all defined benefit plans accounted for under SFAS No. 87,
"Employers' Accounting for Pensions," are as follows:
<Table>
<Caption>
Three Months Ended
March 31,
----------------------------------
(Millions) 2006 2005
--------------- ---------------
Service cost $ 29 $ 26
Interest cost 31 29
Expected return on plan assets (37) (35)
Recognized net actuarial loss 10 7
Settlement/curtailment loss 1 2
--------------- ---------------
Net periodic pension benefit cost $ 34 $ 29
=============== ===============
</Table>
In addition, the net periodic postretirement benefit expense recognized
was $10 million and $9 million for the three months ended March 31, 2006
and 2005, respectively.
6. Stock-Based Compensation
Effective July 1, 2005, the Company adopted SFAS No. 123 (revised 2004),
"Share-Based Payment (SFAS No. 123(R))," using the modified prospective
application. The adoption did not have a material impact on the Company's
financial statements since the Company has been expensing share based
awards granted after January 1, 2003 under the provisions of SFAS No.
123, "Accounting for Stock-Based Compensation." For the three months
ended March 31, 2006 and 2005, included in net income (including
discontinued operations) is expense of $52 million and $58 million
after-tax, respectively, of stock-based compensation, of which $13
million and $23 million after-tax, respectively, related to stock
options. If the Company had followed the fair value recognition
provisions of SFAS No. 123(R) for all outstanding and unvested stock
options and other stock-based compensation for the three months ended
March 31, 2005, stock-based compensation (including discontinued
operations) would have been $75 million (including $9 million in expense
for Portfolio Grants) after-tax and would have decreased net income by
$8 million and decreased diluted earnings per common share (EPS) by $0.01.
While the Company recognized expense associated with Portfolio Grants
prior to the adoption of SFAS No. 123(R), it did not include such expense
in stock-based compensation prior to adoption.
6
<Page>
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. Earnings per Common Share
Basic EPS is computed using the average actual shares outstanding during
the period. Diluted EPS is basic EPS adjusted for the dilutive effect of
stock options, restricted stock awards and other financial instruments
that may be converted into common shares. The computations of basic and
diluted EPS from continuing and discontinued operations for the three
months ended March 31, 2006 and 2005 are as follows:
<Table>
<Caption>
Three Months Ended
March 31,
---------------------------------
(Millions, except per share amounts) 2006 2005
--------------- ---------------
Numerator:
Income from continuing operations $ 876 $ 745
(Loss) Income from discontinued operations, net of tax (3) 201
--------------- ---------------
Net income $ 873 $ 946
=============== ===============
Denominator:
Basic: Weighted-average shares outstanding during the period 1,232 1,239
Add: Dilutive effect of stock options, restricted
stock awards and other dilutive securities 26 25
--------------- ---------------
Diluted 1,258 1,264
=============== ===============
Basic EPS:
Income from continuing operations $ 0.71 $ 0.60
(Loss) Income from discontinued operations - 0.16
--------------- ---------------
Net income $ 0.71 $ 0.76
=============== ===============
Diluted EPS:
Income from continuing operations $ 0.70 $ 0.59
(Loss) Income from discontinued operations (0.01) 0.16
--------------- ---------------
Net income $ 0.69 $ 0.75
=============== ===============
</Table>
For the three months ended March 31, 2006 and 2005, the dilutive effect
of stock options excludes 6 million and 18 million options, respectively,
from the computation of diluted EPS because inclusion of the options
would have been anti-dilutive. See Notes 8 and 18 to the Consolidated
Financial Statements in the Company's Annual Report on Form 10-K for the
year ended December 31, 2005, for discussion of the Company's convertible
debentures, including the circumstances under which they would affect the
computation of EPS and when they would be convertible into the Company's
common shares.
7
<Page>
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. Segment Information
The following table presents certain operating segment information for
the three months ended March 31, 2006 and 2005:
<Table>
<Caption>
Three Months Ended
March 31,
---------------------------------
(Millions) 2006 2005
--------------- ---------------
Revenues:
U.S. Card Services $ 3,180 $ 2,777
International Card & Global Commercial Services 2,303 2,146
Global Network & Merchant Services 705 638
Corporate & Other 144 79
--------------- ---------------
Total $ 6,332 $ 5,640
=============== ===============
Income (loss) from continuing operations:
U.S. Card Services $ 546 $ 482
International Card & Global Commercial Services 213 192
Global Network & Merchant Services 166 111
Corporate & Other (49) (40)
--------------- ---------------
Total $ 876 $ 745
=============== ===============
</Table>
For certain income statement items that are affected by asset
securitizations and to reflect certain tax-exempt investment income as if
it had been earned on a taxable basis at U.S. Card Services, data are
provided on both a basis consistent with U.S. generally accepted
accounting principles (GAAP) as presented above, as well as on a managed
basis. U.S. Card Services revenues on a managed basis were $3.4 billion
and $3.0 billion for the three months ended March 31, 2006 and 2005,
respectively. Income from continuing operations is the same under both a
GAAP and managed basis. For a further discussion of managed basis
information, see the U.S. Card Services Results of Operations section of
Management's Discussion and Analysis of Financial Condition and Results
of Operations.
8
<Page>
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. Restructuring Charges
In the first quarter of 2006, the Company recorded restructuring charges
related to the Company's business travel, Travelers Cheque and
international card businesses. The charges related to severance
obligations are included in human resources and the other exit costs are
included in other expenses in the Company's Consolidated Statements of
Income.
The following table summarizes by category the Company's restructuring
charge activity for each of the Company's operating segments.
<Table>
<Caption>
International
Card & Global
Global Network &
U.S. Card Commercial Merchant Corporate
(Millions) Services Services Services & Other Total
--------------------------------------------------------------------------------
Severance
Liability at December 31, 2005 $ 4 $ 48 $ 2 $ 44 $ 98
Cash paid (1) (12) - (6) (19)
Charges 2 11 1 (3) 11
--------------------------------------------------------------------------------
Liability at March 31, 2006 5 47 3 35 90
--------------------------------------------------------------------------------
Other
Liability at December 31, 2005 - 4 - 5 9
Cash paid (2) (1) - (5) (8)
Charges 6 1 - - 7
--------------------------------------------------------------------------------
Liability at March 31, 2006 4 4 - - 8
--------------------------------------------------------------------------------
Total liability at March 31, 2006 $ 9 $ 51 $ 3 $ 35 $ 98
================================================================================
</Table>
10. Income Taxes
The Company is under continuous examination by the Internal Revenue
Service (IRS) and tax authorities in other countries and states in which
the Company has significant business operations. The tax years under
examination vary by jurisdiction. The Company routinely assesses the
likelihood of additional assessments in each of the taxing jurisdictions
resulting from these examinations. Tax reserves have been established
that the Company believes to be adequate in relation to the potential for
additional assessments. Once established, reserves are adjusted when
there is more information available, a change in circumstance or when an
event occurs necessitating a change to the reserves.
The effective tax rate for first quarter of 2006 was 34 percent, up from
24 percent for the full year 2005. The 2005 effective tax rate reflected
the impact of tax benefits related to the finalization of state tax
returns and resolution of IRS audits of previous years' tax returns.
9
<Page>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
American Express Company (the Company) is a leading global payments, network
and travel company. The Company offers a broad range of products including
charge and credit cards; stored value products such as Travelers Cheques and
gift cards; travel agency services and travel, entertainment and purchasing
expense management services; network services and merchant acquisition and
merchant processing for our network partners and proprietary payments
businesses; and international banking products. The Company's various products
are sold globally to diverse customer groups, including consumers, small
businesses, mid-market companies, large corporations and banking institutions.
These products are sold through various channels including direct mail,
on-line applications, targeted sales forces and direct response advertising.
The Company generates revenue from a variety of sources including global
payments, such as charge and credit cards, travel services and stored value
products, including Travelers Cheques. Charge and credit cards generate
revenue for the Company primarily in four different ways:
- Discount revenue, the Company's largest single revenue source, which
represents fees charged to merchants when cardmembers use their
cards to purchase goods and services on our 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 earnings related to
cardmember loans financed through securitization activities.
In addition to funding and operating costs associated with these activities,
other major expense categories are expenses related to marketing and reward
programs that add new cardmembers and promote cardmember loyalty and spending,
and provisions for anticipated cardmember credit and fraud losses.
The Company believes that its "spend-centric" business model (in which it
focuses primarily on generating revenues by driving spending on its cards and
secondarily by finance charges and fees) has significant competitive
advantages. For merchants, the higher spending represents greater value to
them in the form of loyal customers and higher sales, which gives the Company
the ability to earn a premium discount rate and invest in greater value-added
services for merchants. As a result of the higher revenues generated from
higher spending, the Company has the flexibility to offer more attractive
rewards and other incentives to cardmembers, which in turn create an incentive
to spend more on their cards.
On September 30, 2005, the Company completed the spin-off of Ameriprise
Financial, Inc. (Ameriprise), formerly known as American Express Financial
Corporation, the Company's financial planning and financial services business.
In addition, during the third quarter of 2005, the Company completed certain
dispositions including the sale of American Express Tax and Business Services,
Inc. (TBS), its tax, accounting and consulting business. The operating results
and cash flows related to Ameriprise and certain dispositions (including TBS)
have been reflected as discontinued operations in the Consolidated Financial
Statements.
Certain statistical information shown in the table below is presented on a
"managed basis," as if, in the U.S. Card Services segment, there had been no
cardmember lending securitization transactions, and certain tax-exempt
investment income had been earned on a taxable basis. These managed basis
adjustments, and management's rationale for such presentation, are discussed
further in U.S. Card Services below under "Differences between GAAP and
Managed Basis Presentation."
Certain of the statements in this Form 10-Q report are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. See the "Forward-Looking Statements" section below.
10
<Page>
Selected Statistical Information
(Billions, except percentages and where indicated)
<Table>
<Caption>
Three Months Ended
March 31,
----------------------------
2006 2005
------------ ------------
Card billed business(a):
United States $ 92.9 $ 79.6
Outside the United States 34.3 29.7
------------ ------------
Total $ 127.2 $ 109.3
============ ============
Total cards-in-force (millions)(a):
United States 44.0 40.3
Outside the United States 28.5 25.8
------------ ------------
Total 72.5 66.1
============ ============
Basic cards-in-force (millions)(a):
United States 33.7 30.6
Outside the United States 23.6 21.3
------------ ------------
Total 57.3 51.9
============ ============
Average discount rate(b) 2.58% 2.61%
Average basic cardmember spending (dollars)(a) $ 2,612 $ 2,412
Average fee per card (dollars)(a) $ 34 $ 35
Travel sales $ 5.3 $ 5.0
Travel commissions and fees/sales 7.9% 8.4%
Worldwide Travelers Cheque and prepaid products:
Sales $ 4.2 $ 4.2
Average outstanding $ 6.9 $ 7.1
Average investments $ 7.7 $ 7.8
Investment yield(c) 5.0% 5.2%
Tax equivalent yield - managed(c) 7.7% 8.0%
International banking:
Total loans $ 7.2 $ 7.0
Private banking holdings $ 20.8 $ 18.9
</Table>
(a) Card billed business includes activities related to proprietary cards,
cards issued under network partnership agreements, cash advances on
proprietary cards 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) 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 an
income tax rate of 35 percent. See the U.S. Card Services segment for
additional information on managed basis presentation.
11
<Page>
Selected Statistical Information (continued)
(Billions, except percentages and where indicated)
<Table>
<Caption>
Three Months Ended
March 31,
----------------------------
2006 2005
------------ ------------
Worldwide cardmember receivables:
Total receivables $ 33.2 $ 30.0
90 days past due as a % of total 1.8% 1.9%
Loss reserves (millions): $ 978 $ 831
% of receivables 2.9% 2.8%
% of 90 days past due 163% 147%
Net loss ratio as a % of charge volume 0.19% 0.23%
Worldwide cardmember lending - owned basis(a):
Total loans $ 32.7 $ 25.9
30 days past due loans as a % of total 2.6% 2.7%
Loss reserves (millions):
Beginning balance $ 996 $ 972
Provision 299 266
Net write-offs (270) (267)
Other 28 (53)
------------ ------------
Ending balance $ 1,053 $ 918
============ ============
% of loans 3.2% 3.6%
% of past due 123% 134%
Average loans $ 32.4 $ 26.3
Net write-off rate 3.3% 4.1%
Net finance charge revenue(b)/average loans 9.1% 9.0%
Worldwide cardmember lending - managed basis(c):
Total loans $ 53.5 $ 46.3
30 days past due loans as a % of total 2.5% 2.6%
Loss reserves (millions):
Beginning balance $ 1,469 $ 1,475
Provision 393 471
Net write-offs (404) (474)
Other 96 (53)
------------ ------------
Ending balance $ 1,554 $ 1,419
============ ============
% of loans 2.9% 3.1%
% of past due 116% 120%
Average loans $ 53.7 $ 46.4
Net write-off rate 3.0% 4.1%
Net finance charge revenue(b)/average loans 9.2% 9.1%
</Table>
(a) "Owned" or GAAP basis measurement reflects only cardmember loans included
in the Company's Consolidated Balance Sheets.
(b) Computed on an annualized basis.
(c) 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.
***
The following discussions regarding Consolidated Results of Operations and
Consolidated Liquidity and Capital Resources are presented on a basis
consistent with GAAP.
12
<Page>
Consolidated Results of Operations for the Three Months Ended March 31, 2006
and 2005
The Company's 2006 consolidated income from continuing operations rose 18
percent to $876 million and diluted earnings per share (EPS) from continuing
operations rose 19 percent to $0.70.
The Company's consolidated net income decreased 8 percent to $873 million and
diluted EPS decreased 8 percent to $0.69 in the three-month period ended March
31, 2006 as compared to a year ago. Net income includes a loss of $3 million
from discontinued operations compared to $201 million of income from
discontinued operations a year ago. On a trailing 12-month basis, return on
average shareholders' equity (ROE) was 27 percent, up from 23 percent a year
ago.
Both the Company's revenues and expenses are affected by changes in the
relative values of non-U.S. currencies to the U.S. dollar. The currency rate
changes reduced both revenue and expense growth by approximately one
percentage point for the three months ended March 31, 2006 and 2005.
Results from continuing operations for the three months ended March 31, 2006
included:
- A $112 million ($73 million after-tax) charge related to a higher
ultimate redemption rate (URR) assumption within the U.S. Membership
Rewards reserve model,
- A $72 million ($47 million after-tax) net reduction in finance
charge revenues and securitization income related to higher than
anticipated cardmember completion of consumer debt repayment
programs and certain associated payment waivers,
- A $63 million ($53 million after-tax) higher provision for losses in
Taiwan due primarily to the impact of industry-wide credit issues,
- An estimated favorable impact of $150 million ($98 million
after-tax) from lower early credit write-offs, primarily related to
bankruptcy legislation enacted in 2005 and lower than expected costs
associated with Hurricane Katrina, and
- An $88 million ($40 million after-tax) gain related to the
completion of the sale of the Company's investment in Egyptian
American Bank (EAB).
Results from continuing operations for the three month periods ended March 31,
2006 and 2005 also included $25 million ($16 million after-tax) and $21
million ($14 million after-tax), respectively, of costs related to reengineering
efforts in the Company's business travel and international card areas in both
periods, and within the Company's Travelers Cheque business in the first quarter
of 2006 and finance and technology areas in the first quarter of 2005.
Reengineering costs for the three month period ended March 31, 2006 included
$18 million ($12 million after-tax) of restructuring costs.
In March, 2006, the Company announced an agreement to sell its card and
related operations in Brazil to Banco Bradesco S. A. (Bradesco), for
approximately $490 million upon closing, which is expected to occur in the
second quarter of 2006. Bradesco will have the exclusive right for a minimum
of 10 years to issue in Brazil the classic Green, Gold and Platinum cards
which carry the American Express Centurion logo. This agreement does not
preclude our other network partners, HSBC and BankBoston, from operating
as Network Card Licensees within the market.
Revenues
Consolidated revenues were $6.3 billion, up 12 percent from $5.6 billion in
the same period a year ago. Revenues increased due to higher discount
revenues, increased cardmember lending net finance charge revenue, higher
other commissions and fees and greater securitization income, net.
Discount revenue rose 13 percent to $3.0 billion as compared to a year ago as
a result of a 16 percent increase in worldwide billed business, offset in part
by a lower average discount rate. The decrease in the discount rate compared
to last year continues to reflect selective repricing initiatives and ongoing
changes
13
<Page>
in mix of spending between various merchant segments. Selective repricing
initiatives, continued changes in the mix of business and volume-related
pricing discounts will likely continue to result in some erosion of the
average discount rate over time. The 16 percent increase in worldwide billed
business is related to an 8 percent increase in average spending per
proprietary basic card and 10 percent growth in cards-in-force. U.S. billed
business was up 17 percent reflecting growth of 15 percent within the
Company's consumer card business, a 19 percent increase in small business
spending, a 17 percent improvement in Corporate Services volumes and an 8
percent increase in average spending per proprietary basic card.
Excluding the impact of foreign exchange translation, worldwide billed
business and spending per proprietary basic card in force increased 17 percent
and 9 percent, respectively. Total billed business outside the U.S. increased
19 percent reflecting double-digit proprietary growth in all regions with the
largest increases in Canada and Europe. Additionally, within the proprietary
business, billed business outside the U.S. reflected 16 percent growth in
consumer and small business spending, as well as a 24 percent increase in
Corporate Services volumes and an 11 percent increase in average spending per
proprietary basic card. Billed business related to Global Network Services
increased 25 percent during the first quarter of 2006.
The increase in overall cards-in-force reflected within both proprietary and
Global Network Services reflected continued robust card acquisitions. In the
U.S. and non-U.S. businesses, 1 million and 500,000 cards were added during
the three months ended March 31, 2006, respectively.
Cardmember lending net finance charge revenue of $729 million rose 23 percent,
reflecting 23 percent growth in average worldwide lending balances on an owned
basis and a relatively flat portfolio yield.
Other commissions and fees increased 15 percent to $639 million on higher
card-related assessment and conversion revenues.
Securitization income, net increased 22 percent to $386 million as a greater
average balance of securitized loans, a higher trust portfolio yield and a
decrease in the trust portfolio write-offs, primarily related to the 2005 U.S.
bankruptcy legislation, were partially offset by greater interest expense due
to a higher coupon rate paid to certificate holders and the impact of higher
than anticipated cardmember completion of consumer debt repayment programs and
certain associated payment waivers. Included in securitization income, net for
the three months ended March 31, 2006 is excess spread related to securitized
loans, including servicing income, of $400 million offset by a net decrease of
$14 million due to the impact related to maturities which were greater than
issuances. For the three months ended March 31, 2005 the excess spread was
approximately $316 million. Securitization income, net excludes the credit
provision impact related to issuances and maturities.
Expenses
Consolidated expenses were $5.0 billion, up 10 percent from $4.6 billion for
the same period in 2005. The increase in the first quarter of 2006 was
primarily driven by higher marketing, promotion, rewards and cardmember
services expenses, greater provisions for losses and benefits, increased
interest costs, higher professional services costs and greater expenses for
human resources, partially offset by lower other expenses. Consolidated
expenses included a $112 million charge related to a higher estimated
redemption rate for U.S. Membership Rewards and a $63 million higher provision
for credit losses in Taiwan. These items were more than offset by the
favorable impact of $150 million from lower credit-write-offs and lower than
expected costs associated with Hurricane Katrina and the $88 million gain on
the sale of the Company's investment in EAB.
Marketing, promotion, rewards and cardmember services expenses increased 15
percent to $1.5 billion versus a year ago, reflecting greater rewards costs
and modestly higher marketing and promotion expenses. The higher rewards costs
continued to reflect volume growth, a higher redemption rate, and strong
cardmember loyalty program participation. Rewards costs also reflected the
$112 million charge related to a higher ultimate redemption rate (URR)
assumption within the U.S. Membership Rewards reserve model
14
<Page>
to reflect program redemption trends over the past five years. Prior URR
calculations utilized redemptions since the program inception in 1991.
Marketing expenses continued to reflect relatively high levels of spending
related to various other business-building initiatives. However, the Company's
ongoing global "MyLife, MyCard (SM)" brand-related advertising costs were
lower than last year, when the campaign was in its early stages.
Human resources expenses increased 4 percent to $1.2 billion due to higher
headcount, merit increases and larger benefit costs, partially offset by lower
management incentive expenses. Human resources expenses also included $11
million of restructuring related severance.
Total provisions for losses and benefits increased 13 percent over last year
to $668 million as the lending and investment certificate and other provisions
growth of 9 percent and 75 percent, respectively, was slightly offset by a 3
percent decline in the charge card provision. The increase in the lending
provision was driven by the impact of industry-wide credit issues in Taiwan
and higher volumes, partially offset by the favorable impact of lower early
credit write-offs, primarily related to the 2005 U.S. bankruptcy legislation
and lower than expected costs related to Hurricane Katrina. The investment
certificate and other provision rose due to higher interest rates on larger
investment certificate balances.
Professional services expenses increased 15 percent to $561 million reflecting
increased technology costs related to higher business and service-related
volumes.
Interest expense rose 39 percent to $279 million due to a higher effective
cost of funds and higher receivable balances.
Other expenses decreased 11 percent to $278 million due primarily to the
inclusion of the $88 million gain related to the completion of the sale of the
Company's investment in EAB, partially offset by increased business volumes.
Other expenses also included $7 million of restructuring related non-severance
exit costs.
The effective tax rate was 34 percent and 32 percent for the three month
periods ended March 31, 2006 and 2005, respectively. The first quarter of 2006
rate reflected a relatively high effective tax rate related to the gain on the
sale of the Company's investment in EAB, resulting from foreign exchange
translation impacts, in addition to a relatively low effective tax rate
benefit on the credit losses in Taiwan.
(Loss) income from discontinued operations, net of tax for the three months
ended March 31, 2006 and 2005 was $(3) million and $201 million, respectively.
Consolidated Liquidity and Capital Resources
Capital Strategy
The Company believes allocating capital to its growing businesses with a
return on risk-adjusted equity in excess of their cost of capital will
continue to build shareholder value. The Company's philosophy is to retain
earnings sufficient to enable it to meet its growth objectives, and, to the
extent capital exceeds investment opportunities, return excess capital to
shareholders. Assuming the Company achieves its financial objectives of 12 to
15 percent EPS growth, 28 to 30 percent return on shareholders' equity and at
least 8 percent revenue growth, on average and over time, it will seek to
return to shareholders an average of 65 percent of capital generated, subject
to business mix, acquisitions and rating agency requirements. During the three
months ended March 31, 2006, the Company paid $149 million in dividends and
continued share repurchases as discussed below. Including share repurchases
and dividends, during the first quarter of 2006, the Company returned
approximately 93 percent of total capital generated to shareholders. On a
cumulative basis, since the inception of the share repurchase program in 1994,
approximately 66 percent of capital generated has been returned to
shareholders.
15
<Page>
Share Repurchases
The Company has in place a share repurchase program to return equity capital
in excess of its business needs to shareholders. These share repurchases both
offset the issuance of new shares as part of employee compensation plans and
reduce shares outstanding. The Company repurchases its common shares primarily
by open market purchases. Common shares may also be purchased from the
Company-sponsored Incentive Savings Program (ISP) to facilitate the ISP's
required disposal of shares when employee-directed activity results in an
excess common share position. Such purchases are made at market price without
commissions or other fees. During the three months ended March 31, 2006, the
Company purchased 18 million common shares at an average price of $53.39. The
Company repurchased a higher level of shares during the first quarter of 2006
after activity was reduced last year due to the impact of the September 30,
2005 spin-off of Ameriprise. There are approximately 22 million shares
remaining at March 31, 2006 under authorizations to repurchase shares approved
by the Company's Board of Directors.
Cash Flows
Cash Flows from Operating Activities from Continuing Operations
The Company generated net cash provided by operating activities in amounts
greater than net income for both the three months ended March 31, 2006 and
2005 primarily due to provisions for losses and benefits, which represent
expenses in the Consolidated Statements of Income but do not require cash at
the time of provision. Similarly, depreciation and amortization represent
non-cash expenses. In addition, net cash was used by fluctuations in other
operating assets and liabilities. These accounts vary significantly in the
normal course of business due to the amount and timing of various payments.
Management believes cash flows from operations, available cash balances and
short-term borrowings will be sufficient to fund the Company's operating
liquidity needs.
Cash Flows from Investing Activities from Continuing Operations
The Company's investing activities primarily include the funding of cardmember
loans and receivables and the Company's Available-for-Sale investment
portfolio.
For the three months ended March 31, 2006 and 2005, net cash was provided by
investing activities primarily due to net decreases in cardmember receivables
and loans.
Cash Flows from Financing Activities from Continuing Operations
The Company's financing activities primarily include the issuance of debt and
taking customer deposits in addition to sales of investment certificates. The
Company also regularly repurchases its common shares.
For the three months ended March 31, 2006, net cash was used in financing
activities primarily due to a net decrease in customers' deposits and an
increase in share repurchase activity. For the three months ended March 31,
2005, net cash was used in financing activities primarily due to a net
decrease in total debt, a net decrease in customers' deposits and share
repurchase activity.
Financing Activities
The Company funds its cardmember receivables and loans using various
funding sources, such as short- and long-term debt, including medium-term notes,
and sales of cardmember receivables and loans through securitizations. Net
accounts receivable and cardmember loans decreased as compared to
December 31, 2005 primarily as a result of seasonal spending at year-end.
Short-term debt decreased from December 31, 2005 primarily as a result of
scheduled maturities or payments using funds generated from operations.
Long-term debt increased slightly from December 31, 2005.
Funding
As of March 31, 2006, the Company maintained total bank lines of credit of
$13.3 billion, of which $10.4 billion was available under these facilities.
American Express Travel Related Services (TRS), a wholly-owned
subsidiary of the Company; American Express Centurion Bank (Centurion Bank), a
16
<Page>
wholly-owned subsidiary of TRS; American Express Credit Corporation (Credco),
a wholly-owned subsidiary of TRS; American Express Overseas Credit Corporation
Limited, a wholly-owned subsidiary of Credco; and American Express Bank Ltd.
(AEB) have established a program for the issuance, outside the United States,
of debt instruments to be listed on the Luxembourg Stock Exchange. The maximum
aggregate principal amount of debt instruments outstanding at any one time
under the program will not exceed $6.0 billion through March 31, 2006. At
March 31, 2006, $3.1 billion was outstanding under this program. In April
2006, the capacity under the program was increased to $10.0 billion.
At March 31, 2006, the Parent Company had $4.3 billion of debt or equity
securities available for issuance under shelf registrations filed with the
Securities and Exchange Commission (SEC). As of March 31, 2006, Credco had the
ability to issue approximately $2.4 billion of debt securities under shelf
registration statements filed with the SEC following the issuance of $800
million of medium-term notes during the three months ended March 31, 2006. In
addition, Credco had approximately $1.9 billion of medium-term notes
available for issuance as of March 31, 2006 under a Canadian shelf registration.
During the three months ended March 31, 2006, Credco issued approximately $435
million of fixed rate notes from this shelf registration.
The Board of Directors authorized a Parent Company commercial paper program.
This program would be supported by a $2.1 billion multi-purpose bank credit
facility that expires incrementally through 2009. There was no Parent Company
commercial paper outstanding during the three months ended March 31, 2006 and
no borrowings have been made under its bank credit facility.
Airline Industry Matters
Historically, the Company has not experienced significant revenue declines
resulting from a particular airline's scaling-back or closure of operations
due to bankruptcy or other financial challenges because the volumes generated
from the airline are typically shifted to other participants in the industry
that accept the Company's card products. Nonetheless, the Company is exposed
to business and credit risk in the airline industry primarily through business
arrangements where the Company has remitted payment to the airline for a
cardmember purchase of tickets that have not yet been used or "flown." This
creates a potential exposure for the Company in the event that the cardmember
is not able to use the ticket and the Company, based on the facts and
circumstances, credits the cardmember for the unused ticket. Historically,
this type of exposure has not generated any significant losses for the Company
because of the need for an airline that is operating under bankruptcy
protection to continue accepting credit and charge cards and honoring requests
for credits and refunds in the ordinary course of business, and in furtherance
of its reorganization and its formal assumption, with bankruptcy court
approval, of its card acceptance agreement, including approval of the
Company's right to hold cash to cover these potential exposures to provide
credits to cardmembers. Typically, as an airline's financial situation
deteriorates the Company delays payment to the airline thereby increasing
cash held to protect itself in the event of an ultimate liquidation of the
airline. The Company's goal in these distressed situations is to hold
sufficient cash over time to ensure that upon liquidation the cash held is
equivalent to the credit exposure related to any unused tickets.
As part of Delta Airlines' (Delta) decision to file for protection under
Chapter 11 of the Bankruptcy Code, the Company lent to Delta $350 million as
part of Delta's post-petition, debtor-in-possession (DIP) financing under the
Bankruptcy Code. At March 31, 2006, the remaining principal balance was $300
million. This post-petition facility continues to be structured as an advance
against the Company's obligations to purchase Delta SkyMiles rewards points
under the Company's co-brand and Membership Rewards agreements and will be
amortized ratably each month beginning in July 2006 through September 2007.
Given the depth of the Company's business relationships with Delta through the
SkyMiles Credit Card and Delta's participation as a key partner in the
Company's Membership Rewards program, in the event Delta's reorganization
under the bankruptcy laws is not successful or otherwise negatively impacts
the Company's relationship with Delta, the Company's future financial results
could be adversely impacted. As previously disclosed, American Express' Delta
SkyMiles Credit Card co-brand portfolio accounts for less than 10 percent of
the Company's worldwide billed business and less than 15 percent of worldwide
managed lending receivables.
17
<Page>
BUSINESS SEGMENT RESULTS
As discussed more fully below, U.S. Card Services' results are presented on a
managed basis and International Card & Global Commercial Services', Global
Network & Merchant Services' and Corporate & Other results are presented on a
basis consistent with GAAP.
U.S. Card Services
Differences between GAAP and Managed Basis Presentation
The Company presents certain information on a managed basis because that is
the way the Company's management views and manages the business.
For U.S. Card Services, managed basis means the presentation assumes there
have been no securitization transactions, i.e., all securitized cardmember
loans and related income effects are reflected as if they were in the
Company's balance sheets and income statements, respectively. Management
believes that a full picture of trends in the Company's cardmember lending
business can only be derived by evaluating the performance of both securitized
and non-securitized cardmember loans. Asset securitization is just one of
several ways for the Company to fund cardmember loans. Use of a managed basis
presentation, including non-securitized and securitized cardmember loans,
presents a more accurate picture of the key dynamics of the cardmember lending
business, avoiding distortions due to the mix of funding sources at any
particular point in time. The Company does not currently securitize
international loans.
The managed basis presentation for U.S. Card Services also 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.
U.S. Card Services' owned portfolio is primarily comprised of cardmember
receivables generated by the Company's charge card products and unsecuritized
cardmember loans. The Company securitizes cardmember loans as part of its
financing strategy; consequently, the level of unsecuritized cardmember loans
is primarily a function of the Company's financing requirements. Delinquency,
reserve coverage and net write-off rates have historically been broadly
comparable between the Company's owned and managed portfolios.
On a GAAP basis, results reflect net securitization income, which is comprised
of the non-credit provision components of the net gains and charges from
securitization activities, the amortization and related impairment charges, if
any, of the interest-only strip, excess spread related to securitized loans,
net finance charge revenue on retained interests in securitized loans, and
servicing income, net of related discounts or fees. Excess spread, which is
the net positive cash flow from interest and fee collections allocated to the
investor's interests after deducting the interest paid on investor
certificates, credit losses, contractual servicing fees and other expenses, is
recognized in securitization income as it is earned. See Selected Statistical
Information below for data relating to U.S. Card Services' owned loan
portfolio.
During the three months ended March 31, 2006, U.S. Card Services recognized a
net decrease in income, including the credit components, of $22 million ($14
million after-tax) from net securitization activities. The net decrease
consisted of $46 million of income from the securitization of $1.4 billion of
cardmember loans, including the impact of the related credit reserves on the
sold loans. This amount was offset by $68 million of charges related to the
maturity of $1.8 billion of previously outstanding issuances. During the three
months ended March 31, 2005, U.S. Card Services recognized net gains of $6
million ($4 million after-tax) from net securitization activities. The net gains
consisted of $41 million of income from the securitization of
18
<Page>
$1.2 billion of cardmember loans. This amount was partially offset by $35
million of charges related to the maturity of $1.0 billion of securitizations.
Management views any net gains from securitizations as discretionary benefits
to be used for card acquisition expenses, which are reflected in both
marketing, promotion, rewards and cardmember services and other operating
expenses. Consequently, the managed basis presentation assumes the impact of
this net activity was offset by higher marketing, promotion, rewards and
cardmember services expenses and other operating expenses. Accordingly, the
incremental expenses, as well as the impact of the net lending securitization
activity, are eliminated in the three months ended March 31, 2005. During the
three months ended March 31, 2006, net securitization activity generated a
net decrease in income, due to the impact related to more maturities than
issuances, the result of which was an increase of $13 million and $9 million,
respectively, in the managed basis marketing, promotion, rewards and cardmember
services expenses and human resources and other operating expenses, reflecting
the assumption that spending on a GAAP basis was lower due to the net decrease
in income.
Selected Income Statement Data
The following tables reconcile the GAAP basis for certain U.S. Card Services
income statement line items to the managed basis information, where different.
<Table>
<Caption>
Securitization Tax Equivalent
(Millions) GAAP Basis Effect Effect Managed Basis
------------------- ------------------- ------------------- -------------------
Three Months Ended
March 31, 2006 2005 2006 2005 2006 2005 2006 2005
-------- -------- -------- -------- -------- -------- -------- --------
Revenues:
Discount revenue, net card
fees and other $ 2,314 $ 2,059 $ 48 $ 53 $ 55 $ 57 $ 2,417 $ 2,169
Cardmember lending:
Finance charge revenue 674 522 733 609 1,407 1,131
Interest expense 194 120 247 140 441 260
-------- -------- -------- -------- -------- --------
Net finance charge 480 402 486 469 966 871
revenue
Securitization income, net 386 316 (386) (316) - -
-------- -------- -------- -------- -------- -------- -------- --------
Total revenues 3,180 2,777 148 206 55 57 3,383 3,040
-------- -------- -------- -------- -------- -------- -------- --------
Expenses:
Marketing, promotion, rewards
and cardmember services 1,034 837 13 (4) 1,047 833
Provision for losses 307 342 126 212 433 554
Human resources and other
operating expenses 1,043 895 9 (2) 1,052 893
-------- -------- -------- -------- -------- --------
Total expenses 2,384 2,074 $ 148 $ 206 2,532 2,280
-------- -------- -------- -------- -------- -------- -------- --------
Pretax segment income 796 703 55 57 851 760
Income tax provision 250 221 $ 55 $ 57 $ 305 $ 278
-------- -------- -------- -------- -------- --------
Segment income $ 546 $ 482
======== ========
</Table>
19
<Page>
Selected Statistical Information
(Billions, except percentages and where indicated)
<Table>
<Caption>
Three Months Ended
March 31,
----------------------------
2006 2005
------------ ------------
Card billed business $ 75.3 $ 65.0
Total cards-in-force (millions) 38.3 35.5
Basic cards-in-force (millions) 28.4 26.1
Average quarterly basic cardmember spending (dollars) $ 2,690 $ 2,506
U.S. Consumer Travel
Travel sales $ 0.5 $ 0.4
Travel commissions and fees/sales 8.1% 9.0%
Worldwide Travelers Cheque and prepaid products:
Sales $ 4.2 $ 4.2
Average outstanding 6.9 7.1
Average investments 7.7 7.8
Investment yield(a) 5.0% 5.2%
Tax equivalent yield - managed(a) 7.7% 8.0%
Total segment assets $ 66.6 $ 57.7
Segment capital $ 5.0 $ 4.4
Return on segment capital(b) 39.4% 39.4%
Cardmember receivables:
Total receivables $ 17.2 $ 15.7
90 days past due as a % of total 2.3% 2.3%
Net loss ratio as a % of charge volume 0.20% 0.25%
Cardmember lending - owned basis (c):
Total loans $ 24.3 $ 18.7
30 days past due loans as a % of total 2.4% 2.6%
Average loans $ 24.0 $ 19.2
Net write-off rate 2.6% 3.9%
Net finance charge revenue(d)/average loans 8.1% 8.4%
Cardmember lending - managed basis (e):
Total loans $ 45.1 $ 39.2
30 days past due loans as a % of total 2.4% 2.5%
Average loans $ 45.3 $ 39.3
Net write-off rate 2.6% 4.1%
Net finance charge revenue(d)/average loans 8.7% 8.9%
</Table>
(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 an 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" or GAAP basis measurement reflects only cardmember loans included
in the Company's Consolidated Balance Sheets.
(d) Computed on an annualized basis.
(e) Includes on-balance sheet cardmember loans and off-balance sheet
securitized cardmember loans. As discussed above, the difference between the
"owned basis" (GAAP) information and "managed basis" information is
attributable to the effects of securitization activities.
Results of Operations for the Three Months Ended March 31, 2006 and 2005
The following discussion of U.S. Card Services' segment results of operations
for the three months ended March 31, 2006 and 2005 is presented on a managed
basis.
U.S. Card Services reported segment income of $546 million, a 13 percent
increase from $482 million for the same period a year ago.
20
<Page>
U.S. Card Services' revenues increased 11 percent due to higher discount
revenue, net card fees and other, and increased cardmember lending net finance
charge revenue. Discount revenue, net card fees and other of $2.4 billion rose
11 percent from a year ago largely due to increases in billed business
volumes. The 16 percent increase in billed business reflected a 7 percent
increase in spending per proprietary basic card and an 8 percent growth in
cards-in-force. Within the U.S. consumer business, billed business grew 15
percent and small business volumes rose 19 percent. Cardmember lending net
finance charge revenue of $966 million rose 11 percent as compared to the same
periods a year ago, primarily due to 15 percent growth in the average lending
balances.
U.S. Card Services' expenses increased 11 percent, primarily due to higher
marketing, promotion, rewards and cardmember services costs, greater human
resources expenses and other operating expenses partially offset by lower
provision for losses.
Marketing, promotion, rewards and cardmember services expenses of $1.0 billion
increased 26 percent as compared to the same periods a year ago, due to the
higher Membership Rewards redemption rate estimate discussed above, higher
volume-related rewards costs, and increased marketing and promotion costs due
to the continuation of business-building activities. Total provisions for
losses decreased 22 percent to $433 million reflecting the favorable impact of
lower early credit write-offs due primarily to the effect of last year's
bankruptcy legislation, and lower than expected costs related to Hurricane
Katrina, partially offset by higher volumes. Human resources and other
operating expenses of $1.1 billion increased 18 percent from a year ago. The
increase was due to greater interest expense and higher human resources costs.
In addition, operating expenses rose reflecting volume-related costs.
The effective tax rate was 36 percent and 37 percent for the three months
ended March 31, 2006 and 2005, respectively.
International Card & Global Commercial Services
Selected Income Statement Data
<Table>
<Caption>
Three Months Ended
(Millions) March 31,
---------------------------
2006 2005
------------ ------------
Revenues :
Discount revenue, net card fees and other $ 2,109 $ 1,982
Cardmember lending:
Finance charge revenue 293 247
Interest expense 99 83
------------ ------------
Net finance charge revenue 194 164
------------ ------------
Total revenues 2,303 2,146
------------ ------------
Expenses:
Marketing, promotion, rewards and cardmember services 343 310
Provision for losses and benefits 349 228
Human resources and other operating expenses 1,300 1,366
------------ ------------
Total expenses 1,992 1,904
------------ ------------
Pretax segment income 311 242
Income tax provision 98 50
------------ ------------
Segment income $ 213 $ 192
============ ============
</Table>
21
<Page>
Selected Statistical Information
(Billions, except percentages and where indicated)
<Table>
<Caption>
Three Months Ended
March 31,
--------------------------
2006 2005
----------- -----------
Card billed business $ 45.2 $ 39.1
Total cards-in-force (millions) 23.2 21.7
Basic cards-in-force (millions) 18.4 17.2
Average quarterly basic cardmember spending (dollars) $ 2,494 $ 2,275
Global Corporate & International Consumer Travel
Travel sales $ 4.8 $ 4.6
Travel commissions and fees/sales 7.8% 8.4%
International banking:
Total loans $ 7.2 $ 7.0
Private banking holdings $ 20.8 $ 18.9
Total segment assets $ 53.0 $ 48.5
Segment capital $ 4.3 $ 3.8
Return on segment capital(a) 23.2% 21.3%
Cardmember receivables:
Total receivables $ 15.6 $ 14.4
90 days past due as a % of total 1.3% 1.4%
Net loss ratio as a % of charge volume 0.17% 0.22%
Cardmember lending:
Total loans $ 8.4 $ 7.1
30 days past due loans as a % of total 3.2% 2.8%
Average loans $ 8.4 $ 7.2
Net write-off rate 5.5% 4.3%
Net finance charge revenue(b)/average loans 9.4% 9.2%
</Table>
(a) 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.
(b) Computed on an annualized basis.
Results of Operations for the Three Months Ended March 31, 2006 and 2005
International Card & Global Commercial Services reported segment income of
$213 million for the three months ended March 31, 2006, an 11 percent increase
from $192 million for the same period a year ago.
International Card & Global Commercial Services' discount revenue, net card
fees and other revenues of $2.1 billion, rose 6 percent compared to a year
ago, driven primarily by the higher level of card spending, as well as modest
growth in international banking revenues, partially offset by a decline in
travel commissions and fees. The 16 percent increase in billed business
reflected a 10 percent increase in spending per proprietary basic card and a 7
percent growth in cards-in-force.
Excluding the impact of foreign exchange translation, billed business and
spending per proprietary basic card in force increased 18 percent and 12
percent, respectively. All of the Company's major geographic regions
experienced double-digit growth. International consumer and small business
spending rose 16 percent and global corporate spending rose 19 percent.
Cardmember lending net finance charge revenue of $194 million rose 18 percent
compared to the same period a year ago, primarily due to 17 percent growth in
the average lending balances.
22
<Page>
International Card & Global Commercial Services' expenses increased 5 percent
to $2.0 billion due to increased provisions for losses and benefits, higher
marketing and promotion expenses and greater reward costs partially offset by
lower human resources and other operating expenses.
Marketing, promotion, rewards and cardmember services expenses of $343 million
increased 11 percent compared to a year ago, reflecting greater rewards costs
and higher marketing and promotion expenses. Total provisions for losses and
benefits increased 53 percent compared to a year ago, due primarily to
industry-wide credit issues in Taiwan and higher interest rates on larger
investment certificate balances. Human resources and other operating expenses
decreased 5 percent as higher interest expense, human resources and other
operating expenses were more than offset by the $88 million EAB gain discussed
earlier.
The effective tax rate was 32 percent and 21 percent for the three months
ended March 31, 2006 and 2005, respectively. The first quarter of 2006 tax
rate reflects a relatively high effective tax rate related to the gain on the
sale of the Company's investment in EAB, resulting from foreign exchange
translation impacts, in addition to a relatively low effective tax rate
benefit on the credit losses in Taiwan.
Global Network & Merchant Services
Selected Income Statement Data
<Table>
<Caption>
(Millions) Three Months Ended
March 31,
------------------------
2006 2005
----------- -----------
Revenues:
Discount revenue, fees and other $ 705 $ 638
----------- -----------
Expenses:
Marketing and promotion 135 165
Provision for losses 10 17
Human resources and other operating expenses 298 285
----------- -----------
Total expenses 443 467
----------- -----------
Pretax segment income 262 171
Income tax provision 96 60
----------- -----------
Segment income $ 166 $ 111
=========== ===========
</Table>
23
<Page>
Selected Statistical Information
(Billions, except percentages and where indicated)
<Table>
<Caption>
Three Months Ended
March 31,
--------------------------
2006 2005
----------- -----------
Global Card billed business(a) $ 127.2 $ 109.3
Global Network & Merchant Services:
Total segment assets $ 5.7 $ 4.6
Segment capital $ 1.3 $ 1.1
Return on segment capital(b) 51.7% 53.6%
Global Network Services(c):
Card billed business $ 6.6 $ 5.3
Total cards-in-force (millions) 11.0 8.9
</Table>
(a) Global Card billed business includes activities related to proprietary
cards, cards issued under network partnership agreements, cash advances on
proprietary cards 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) First quarter 2006 billed business and cards-in-force reflect the transfer
to International Card & Global Commercial Services' segment of corporate
card accounts in certain emerging markets that had been managed within
Global Network Services.
Results of Operations for the Three Months Ended March 31, 2006 and 2005
Global Network & Merchant Services reported segment income of $166 million for
the three month period ended March 31, 2006, a 50 percent increase from $111
million for the same period a year ago.
Global Network & Merchant Services revenue increased 11 percent to $705
million, due to higher discount revenue, fees and other revenues primarily due
to growth in network-related discount revenues generated from the 16 percent
increase in global card billed business, partially offset by the impact of the
decline in the overall discount rate discussed above.
Global Network & Merchant Services' expenses decreased 5 percent reflecting
lower marketing and promotion offset by an increase in human resources and
other operating expenses.
Marketing and promotion expenses decreased 18 percent reflecting lower
marketing and promotion costs due to a reduction in spending on brand-related
activities. Human resources and other operating expenses of $298 million
increased 5 percent reflecting higher business volumes and greater salary and
benefit costs, partially offset by a larger interest expense credit related to
internal transfer pricing which recognizes the merchant services' accounts
payable-related funding benefit.
The effective tax rate was 37 percent and 35 percent for the three months
ended March 31, 2006 and 2005, respectively.
Corporate & Other
Results of Operations for the Three Months Ended March 31, 2006 and 2005
Corporate & Other had net expense of $49 million compared with a net expense
of $40 million for the same period a year ago.
OTHER REPORTING MATTERS
Accounting Developments
See "Recently Issued Accounting Standards" section of Note 1 to the
Consolidated Financial Statements.
24
<Page>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of the loss in value of portfolios and financial
instruments due to adverse changes in market variables. The Company's
non-trading related market risk consists primarily of interest rate risk in the
card and certificate businesses and foreign exchange risk in international
operations. There were no material changes in these market risks since
December 31, 2005.
ITEM 4. CONTROLS AND PROCEDURES
The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of the Company's disclosure controls and procedures (as such term is defined
in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) as of the end of the period covered by this
report. Based on such evaluation, the Company's Chief Executive Officer and
Chief Financial Officer have concluded that, as of the end of such period, the
Company's disclosure controls and procedures are effective. There have not
been any changes in the Company's internal control over financial reporting
(as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act) during the fiscal quarter to which this report relates that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
Forward-Looking Statements
This report includes forward-looking statements, which are subject to risks
and uncertainties. The words "believe," "expect," "anticipate," "optimistic,"
"intend," "plan," "aim," "will," "may," "should," "could," "would," "likely,"
and similar expressions are intended to identify forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date on which they are made. The
Company undertakes no obligation to update or revise any forward-looking
statements. Factors that could cause actual results to differ materially from
these forward-looking statements include, but are not limited to, the
following: the Company's ability to generate sufficient net income to achieve
a return on equity on a GAAP basis of 28 percent to 30 percent; the Company's
ability to grow its business and meet or exceed its return on shareholders'
equity target by reinvesting approximately 35 percent of annually-generated
capital, and returning approximately 65 percent of such capital to
shareholders, over time, which will depend on the Company's ability to manage
its capital needs and the effect of business mix, acquisitions and rating
agency requirements; consumer and business spending on the Company's credit
and charge card products and Travelers Cheques and other prepaid products and
growth in card lending balances, which depend in part on the ability to issue
new and enhanced card and prepaid products, services and rewards programs, and
increase revenues from such products, attract new cardmembers, reduce
cardmember attrition, capture a greater share of existing cardmembers'
spending, sustain premium discount rates on its card products in light of
regulatory and market pressures, increase merchant coverage, retain
cardmembers after low introductory lending rates have expired, and expand the
Global Network Services business; the Company's ability to introduce new
products, reward program enhancements and service enhancements on a timely
basis during 2006; the success of the Global Network Services business in
partnering with banks in the United States, which will depend in part on the
extent to which such business further enhances the Company's brand, allows the
Company to leverage its significant processing scale, expands merchant
coverage of the network, provides Global Network Services' bank partners in
the United States the benefits of greater cardmember loyalty and higher spend
per customer, and merchant benefits such as greater transaction volume and
additional higher spending customers; the continuation of favorable trends,
including increased travel and entertainment spending, and the overall level
of consumer confidence; the costs and integration of acquisitions; the
success, timeliness and financial impact (including costs, cost savings and
other benefits including increased revenues), and beneficial effect on the
Company's operating expense to revenue ratio, both in the short-term and over
time, of reengineering initiatives being implemented or considered by the
Company, including cost management, structural and strategic measures such as
vendor, process, facilities and operations consolidation,
25
<Page>
outsourcing (including, among others, technologies operations), relocating
certain functions to lower-cost overseas locations, moving internal and
external functions to the Internet to save costs, and planned staff reductions
relating to certain of such reengineering actions; the Company's ability to
reinvest the benefits arising from such reengineering actions in its
businesses; the ability to control and manage operating, infrastructure,
advertising and promotion expenses as business expands or changes, including
the ability to accurately estimate the provision for the cost of the
Membership Rewards program; the Company's ability to manage credit risk
related to consumer debt, business loans, merchant bankruptcies and other
credit trends and the rate of bankruptcies, which can affect spending on card
products, debt payments by individual and corporate customers and businesses
that accept the Company's card products and returns on the Company's
investment portfolios; bankruptcies, restructurings or similar events
affecting the airline or any other industry representing a significant portion
of the Company's billed business, including any potential negative effect on
particular card products and services and billed business generally that could
result from the actual or perceived weakness of key business partners in such
industries; the triggering of obligations to make payments to certain co-brand
partners, merchants, vendors and customers under contractual arrangements with
such parties under certain circumstances; a downturn in the Company's
businesses and/or negative changes in the Company's and its subsidiaries'
credit ratings, which could result in contingent payments under contracts,
decreased liquidity and higher borrowing costs; risks associated with the
Company's agreements with Delta Air Lines to prepay $300 million for the
future purchases of Delta SkyMiles rewards points; fluctuations in foreign
currency exchange rates; fluctuations in interest rates, which impact the
Company's borrowing costs and return on lending products; accuracy of
estimates for the fair value of the assets in the Company's investment
portfolio and, in particular, those investments that are not readily
marketable, including the valuation of the interest-only strip relating to the
Company's lending securitizations; the potential negative effect on the
Company's businesses and infrastructure, including information technology, of
terrorist attacks, disasters or other catastrophic events in the future;
political or economic instability in certain regions or countries, which could
affect lending and other commercial activities, among other businesses, or
restrictions on convertibility of certain currencies; changes in laws or
government regulations; outcomes and costs associated with litigation and
compliance and regulatory matters; and competitive pressures in all of the
Company's major businesses. A further description of these and other risks and
uncertainties can be found in the Company's Annual Report on Form 10-K for the
year ended December 31, 2005, and its other reports filed with the SEC.
PART II. OTHER INFORMATION
AMERICAN EXPRESS COMPANY
ITEM 1. LEGAL PROCEEDINGS
The Company and its subsidiaries are involved in a number of legal and
arbitration proceedings, including class actions, concerning matters arising
in connection with the conduct of their respective business activities. The
Company believes it has meritorious defenses to each of these actions and
intends to defend them vigorously. The Company believes that it is not a party
to, nor are any of its properties the subject of, any pending legal or
arbitration proceedings that would have a material adverse effect on the
Company's consolidated financial condition, results of operations or
liquidity. However, it is possible that the outcome of any such proceedings
could have a material impact on results of operations in any particular
reporting period as the proceedings are resolved. Certain legal proceedings
involving the Company are described below. For a discussion of certain other
legal proceedings involving the Company and its subsidiaries, please refer to
the Company's Annual Report on Form 10-K for the year ended December 31, 2005.
Corporate Matters
In January 2006, a purported class action captioned Paula Kritzman,
individually and on behalf of all others similarly situated v. American
Express Retirement Plan et al. was filed in the U.S. District Court for the
Southern District of New York. The plaintiff alleges that when the American
Express Retirement Plan (the "AXP Plan") was amended effective July 1, 1995,
to convert from a final average pay formula to a "cash
26
<Page>
balance" formula for the calculation of benefits, the terms of the amended AXP
Plan violated the Employee Retirement Income Security Act, as amended
("ERISA"), in at least the following ways: (i) the AXP Plan violated ERISA's
prohibition on reducing rates of benefit accrual due to the increasing age of
a plan participant; (ii) the AXP Plan violated ERISA's prohibition on
forfeiture of accrued benefits; and (iii) the AXP Plan violated ERISA's
present value calculation rules. The plaintiff seeks, among other remedies,
injunctive relief entitling the plaintiff and the purported class to benefits
that are the greater of (x) the benefits to which the members of the class
would have been entitled without regard to the conversion of the benefit
payout formula of the AXP Plan to a cash balance formula and (y) the benefits
under the AXP Plan with regard to the cash balance formula. The plaintiff also
seeks pre- and post-judgment interest and attorneys fees and expenses. The
Company filed a motion with the Court seeking to dismiss the complaint.
U.S. Card Services and Global Merchant Services Matters
The Company has been named in a number of purported class actions in which
the plaintiffs allege an unlawful antitrust tying arrangement between the
Company's charge cards, credit cards and debit cards in violation of various
state and federal laws, including the following: (i) Cohen Rese Gallery et
al. v. American Express Company et al., U.S. District Court for the Northern
District of California (filed July 2003); (ii) Italian Colors Restaurant v.
American Express Company et al., U.S. District Court for the Northern
District of California (filed August 2003); (iii) DRF Jeweler Corp. v.
American Express Company et al., U.S. District Court for the Southern
District of New York (filed December 2003); (iv) Hayama Inc. v. American
Express Company et al., Superior Court of California, Los Angeles County
(filed December 2003); (v) Chez Noelle Restaurant v. American Express Company
et al., U.S. District Court for the Southern District of New York (filed
January 2004); (vi) Mascari Enterprises d/b/a Sound Stations v. American
Express Company et al., U.S. District Court for the Southern District of New
York (filed January 2004); (vii) Mims Restaurant v. American Express Company
et al., U.S. District Court for the Southern District of New York (filed
February 2004); and (viii) The Marcus Corporation v. American Express Company
et al., U.S. District Court for the Southern District of New York (filed July
2004). The plaintiffs in these actions seek injunctive relief and an
unspecified amount of damages. Upon motion to the Court by the Company, the
venue of the Cohen Rese and Italian Colors actions was moved to the U.S.
District Court for the Southern District of New York ("SDNY") in December
2003. Each of the above-listed actions (except for Hayama) is now pending in
the SDNY. In April 2004, the Company filed a motion to dismiss all the
actions filed prior to such date that were pending in the SDNY, and on March
15, 2006, such motion was granted, with the Court finding the claims of the
plaintiffs to be subject to arbitration. Plaintiffs have asked the Court to
reconsider its dismissal. In addition, during the pendency of the motion in
the SDNY, the Company had asked the California Superior Court hearing the
Hayama action referenced above to stay that action pending resolution of such
motion. The Hayama Court has asked the parties to file a status report on
July 7, 2006 to report on, among other matters, the March 15th decision of the
SDNY. The Company also filed a motion to dismiss the action filed by the
Marcus Corporation, which was denied in July 2005. Nonetheless, the Company
continues to believe that it has meritorious defenses and will continue to
vigorously defend against the Marcus action.
In December 2004, a purported class action captioned National Supermarkets
Association, Inc., Mascari Enterprises, Inc. d/b/a Sound Stations, and Bunda
Starr Corp. d/b/a Brite Wines and Spirits v. MBNA America Bank, N.A., MBNA
Corp., Citibank (South Dakota) N.A. and Citigroup, Incorporated, was filed in
the SDNY. The action is a lawsuit related to the antitrust tying actions
described in the preceding paragraph. Although the Company is not named as a
defendant, the plaintiffs in this action are also plaintiffs in the direct
actions against American Express described in the preceding paragraph. This
lawsuit alleges that, by agreeing to issue cards accepted on the American
Express network, MBNA and Citibank have conspired with the Company in the
alleged wrongful tying arrangement described in the preceding paragraph. The
Company believes this lawsuit is without merit and is contrary to the
Department of Justice's successful efforts to render unenforceable Visa's and
MasterCard's rules that prevented banks from issuing American Express branded
cards in the United States. The Company also believes that this lawsuit is
susceptible to the same defenses available to the Company in the direct
actions filed against it, which are described in the preceding paragraph. In
the March 15, 2006
27
<Page>
decision described in the preceding paragraph, the SDNY denied the request of
the Company to intervene in this action and denied the motion of MBNA and
Citibank to dismiss the action. The Court did, however, stay the action
against MBNA and Citibank pending the arbitration of the claims made against
the Company in the actions described in the preceding paragraph.
In August 2005 a purported class action captioned Performance Labs Inc. v.
American Express Travel Related Services Company, Inc. ("TRS"), MasterCard
International Incorporated, Visa USA, Inc. et al. was filed in the U. S.
District Court for the District of New Jersey. The action was then
transferred to the U.S. District Court for the Eastern District of New York.
The complaint alleged that the Company's policy prohibiting merchants from
imposing restrictions on the use of American Express cards that are not
imposed equally on other forms of payment violates U.S. antitrust laws. The
suit sought injunctive relief. TRS moved to dismiss the complaint. In
addition, the Company learned that two additional purported class actions
that made allegations similar to those made in the Performance Labs action
had also been filed: 518 Restaurant Corp. v. American Express Travel Related
Services Company, Inc., MasterCard International Incorporated, Visa USA, Inc.
et al. (filed in August 2005 in the United States District Court for the
Eastern District of Pennsylvania) and Lepkowski v. American Express Travel
Related Services Company, Inc., MasterCard International Incorporated, Visa
USA, Inc. et al. (filed in October 2005 in the U.S. District Court for the
Eastern District of New York). The plaintiffs in these actions sought
injunctive relief. The 518 Restaurant Corp. action was voluntarily withdrawn
without TRS ever having been served with the complaint. The complaint in the
Lepowski action was also never served. The Lepowski and Performance Labs
cases were consolidated in the U.S. District Court for the Eastern District
of New York for pre-trial purposes in a larger multi-district litigation
involving other named defendants not affiliated with the Company, and all
proceedings in the consolidated action were stayed pending the filing of a
consolidated amended complaint. Such consolidated amended complaint was filed
on April 24, 2006, but the Company was not named in that action. Other
defendants, not affiliated with the Company, were named. However, on April
18, 2006, Performance Labs, Inc., Joseph Lepkowski, DDS d/b/a Oak Park Dental
Studio, and Jasa Inc. filed an action in the SDNY against American Express
Company and American Express Travel Related Services Company, Inc. This
complaint challenges the Company's "Anti-Steering" rules as unlawful under
the antitrust laws. As alleged by plaintiffs, these rules prevent merchants
from offering consumers incentives to use alternative forms of payments when
consumers wish to use an American Express-branded card. The plaintiffs seek
only injunctive relief. These plaintiffs have agreed that, subject to their
motion for reconsideration of the Court's March 15, 2006 ruling (discussed
above), a stay would be imposed with regard to their respective actions.
International Matters
In March 2006, in a matter captioned Ptack v. Amex Bank of Canada, filed in
the Superior Court of Quebec, District of Montreal (originally filed in March
2004), the Court authorized a class action against Amex Bank of Canada. The
class includes all persons who were holders of an American Express Credit Card
who paid their credit card account via internet, telephone and/or automatic
banking machine, on or before the due date and incurred a finance charge as a
result of the alleged payment processing policy of Amex Bank. The class claims
reimbursement per class member of finance charges, CDN $100 in punitive
damages and CDN $100 for waste of time, interest and fees and costs. Amex Bank
believes it has meritorious defenses and will defend against this action.
28
<Page>
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(c) ISSUER PURCHASES OF SECURITIES
The table below sets forth the information with respect to purchases of the
Company's common stock made by or on behalf of the Company during the quarter
ended March 31, 2006.
<Table>
<Caption>
Total Number Maximum
of Shares Number of
Purchased as Shares that
Part of May Yet Be
Publicly Purchased
Total Number Announced Under
of Shares Average Price Plans or the Plans or
Period Purchased Paid Per Share Programs (3) Programs
- -------------------------------- --------------- ------------------ ------------------ ---------------
January 1-31, 2006
Repurchase program (1) 3,826,100 $ 52.90 3,826,100 36,077,123
Employee transactions (2) 131,818 $ 53.03 N/A N/A
February 1-28, 2006
Repurchase program (1) 9,327,500 $ 53.32 9,327,500 26,749,623
Employee transactions (2) 954,441 $ 53.04 N/A N/A
March 1-31, 2006
Repurchase program (1) 4,855,200 $ 53.91 4,855,200 21,894,423
Employee transactions (2) 39,614 $ 53.60 N/A N/A
------------ ------------
Total
Repurchase program (1) 18,008,800 $ 53.39
Employee transactions (2) 1,125,873 $ 53.06
</Table>
(1) The Board of Directors of the Company authorized the repurchase
of 120 million shares of common stock in November 2002. At
March 31, 2006, there are approximately 21.9 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, the Company has acquired 548.1 million
shares of common stock under various Board authorizations to
repurchase up to an aggregate of 570 million shares, including
purchases made under agreements with third parties.
(2) Includes: (1) shares delivered by or deducted from holders of
employee stock options who exercised options (granted under the
Company's incentive compensation plans) in satisfaction of the
exercise price and/or tax withholding obligation of such
holders and (2) restricted shares withheld (under the terms of
grants under the Company's incentive compensation plans) to
offset tax withholding obligations that occur upon vesting and
release of restricted shares. The Company's incentive
compensation plans provide that the value of the shares
delivered or attested to, or withheld, shall be the average of
the high and low price of the Company's common stock on the
date the relevant transaction occurs.
(3) Share purchases under publicly announced programs are made
pursuant to open market purchases or privately negotiated
transactions (including with employee benefit plans) as market
conditions warrant and at prices the Company deems appropriate.
29
<Page>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of shareholders was held on April 24, 2006. The
matters that were voted upon at the meeting, and the number of votes cast
for, against or withheld, as well as the number of abstentions and broker
non-votes, as to each such matter, where applicable, are set forth below.
<Table>
<Caption>
Votes Broker
Votes For Votes Against Withheld Abstentions Non-Votes
------------- ----------------- ------------ ------------- --------------
Ratification of
PricewaterhouseCoopers LLP's
selection as its independent
registered public accounting firm
for 2006 1,086,100,411 5,559,712 - 11,688,320 -
Shareholder proposal relating to
stock options 21,381,405 917,972,769 - 15,680,395 148,313,874
Shareholder proposal relating to
majority voting for directors 304,117,503 622,674,298 - 28,242,768 148,313,874
Shareholder proposal relating to the
Company's employment policies 17,366,230 890,608,771 - 47,059,568 148,313,874
Shareholder proposal relating to
reimbursement of expenses for
certain shareholder-nominated
director candidates 35,380,438 884,576,423 - 35,077,708 148,313,874
Election of Directors:
D.F. Akerson 1,077,934,186 - 25,414,257 - -
C. Barshefsky 1,046,169,459 - 57,178,984 - -
U.M. Burns 1,086,906,536 - 16,441,907 - -
K. I. Chenault 1,078,312,017 - 25,036,426 - -
P. Chernin 1,084,081,221 - 19,267,222 - -
P. R. Dolan 1,082,717,720 - 20,630,723 - -
V. E. Jordan, Jr. 1,040,198,077 - 63,150,366 - -
J. Leschly 1,082,623,004 - 20,725,439 - -
R. A. McGinn 1,010,360,575 - 92,987,868 - -
E. D. Miller 1,082,625,250 - 20,723,193 - -
F. P. Popoff 1,052,450,712 - 50,897,731 - -
R. D. Walter 1,085,173,475 - 18,174,968 - -
</Table>
ITEM 6. EXHIBITS
The list of exhibits required to be filed as exhibits to this report are
listed on page E-1 hereof, under "Exhibit Index," which is incorporated
herein by reference.
30
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN EXPRESS COMPANY
------------------------
(Registrant)
Date: May 5, 2006 By /s/ Gary L. Crittenden
----------------------------------
Gary L. Crittenden
Executive Vice President and
Chief Financial Officer
Date: May 5, 2006 By /s/ Joan C. Amble
----------------------------------
Joan C. Amble
Executive Vice President and
Comptroller
(Principal Accounting Officer)
31
<Page>
EXHIBIT INDEX
The following exhibits are filed as part of this Quarterly Report:
<Table>
<Caption>
Exhibit Description
- ------- -----------
12 Computation in Support of Ratio of Earnings to Fixed Charges.
31.1 Certification of Kenneth I. Chenault pursuant to Rule 13a-14(a)
promulgated under the Securities Exchange Act of 1934, as
amended.
31.2 Certification of Gary L. Crittenden pursuant to Rule 13a-14(a)
promulgated under the Securities Exchange Act of 1934, as
amended.
32.1 Certification of Kenneth I. Chenault and Gary L. Crittenden
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
</Table>
E-1