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 |
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|
SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended June 30, 2007
or
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o |
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)
New York |
|
13-4922250 |
(State or other jurisdiction of |
|
(I.R.S. Employer Identification No.) |
incorporation or organization) |
|
|
|
|
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World Financial Center, 200 Vesey Street, New York, NY |
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10285 |
(Address of principal executive offices ) |
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(Zip Code) |
Registrants telephone number, including area code (212) 640-2000
None
Former name, former address and former fiscal year, if changed since last report.
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.
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Yes x |
No o |
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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 |
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Accelerated filer o |
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Non-accelerated filer o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
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Yes o |
No x |
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Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.
Class |
|
Outstanding at July 23, 2007 |
Common Shares (par value $.20 per share) |
|
1,182,884,415 shares |
AMERICAN EXPRESS COMPANY
FORM 10-Q
INDEX
AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENTS OF
INCOME
(Millions, except per share amounts)
(Unaudited)
|
|
Three Months Ended |
|
|||||
|
|
June 30, |
|
|||||
|
|
2007 |
|
2006 |
|
|||
Revenues |
|
|
|
|
|
|||
Discount revenue |
|
$ |
3,670 |
|
$ |
3,292 |
|
|
Net card fees |
|
500 |
|
533 |
|
|||
Travel commissions and fees |
|
491 |
|
483 |
|
|||
Other commissions and fees |
|
681 |
|
642 |
|
|||
Securitization income, net |
|
332 |
|
372 |
|
|||
Other |
|
453 |
|
415 |
|
|||
Total |
|
6,127 |
|
5,737 |
|
|||
Interest income |
|
|
|
|
|
|||
Cardmember lending finance revenue |
|
1,514 |
|
1,100 |
|
|||
International banking |
|
282 |
|
252 |
|
|||
Other |
|
276 |
|
196 |
|
|||
Total |
|
2,072 |
|
1,548 |
|
|||
Total revenues |
|
8,199 |
|
7,285 |
|
|||
Interest expense |
|
|
|
|
|
|||
Cardmember lending |
|
431 |
|
277 |
|
|||
International banking |
|
135 |
|
93 |
|
|||
Charge card and other |
|
503 |
|
373 |
|
|||
Total |
|
1,069 |
|
743 |
|
|||
Revenues net of interest expense |
|
7,130 |
|
6,542 |
|
|||
|
|
|
|
|
|
|||
Expenses |
|
|
|
|
|
|||
Marketing, promotion, rewards and cardmember services |
|
1,828 |
|
1,671 |
|
|||
Human resources |
|
1,331 |
|
1,276 |
|
|||
Professional services |
|
698 |
|
658 |
|
|||
Occupancy and equipment |
|
379 |
|
365 |
|
|||
Communications |
|
116 |
|
113 |
|
|||
Other |
|
345 |
|
287 |
|
|||
Total |
|
4,697 |
|
4,370 |
|
|||
Provisions for losses and benefits |
|
|
|
|
|
|||
Charge card |
|
233 |
|
192 |
|
|||
Cardmember lending |
|
638 |
|
406 |
|
|||
International banking and other (including investment certificates) |
|
122 |
|
132 |
|
|||
Total |
|
993 |
|
730 |
|
|||
Pretax income from continuing operations |
|
1,440 |
|
1,442 |
|
|||
Income tax provision |
|
378 |
|
470 |
|
|||
Income from continuing operations |
|
1,062 |
|
972 |
|
|||
Loss from discontinued operations, net of tax |
|
(5 |
) |
(27 |
) |
|||
Net income |
|
$ |
1,057 |
|
|
$ |
945 |
|
|
|
|
|
|
|
|||
Earnings per Common Share Basic: |
|
|
|
|
|
|||
Income from continuing operations |
|
$ |
0.90 |
|
$ |
0.80 |
|
|
Loss from discontinued operations |
|
|
|
(0.02 |
) |
|||
Net income |
|
$ |
0.90 |
|
$ |
0.78 |
|
|
|
|
|
|
|
|
|||
Earnings per Common Share Diluted: |
|
|
|
|
|
|||
Income from continuing operations |
|
$ |
0.88 |
|
$ |
0.78 |
|
|
Loss from discontinued operations |
|
|
|
(0.02 |
) |
|||
Net income |
|
$ |
0.88 |
|
$ |
0.76 |
|
|
|
|
|
|
|
|
|||
Average common shares outstanding for earnings per common share: |
|
|
|
|
|
|||
Basic |
|
1,179 |
|
1,217 |
|
|||
Diluted |
|
1,203 |
|
1,242 |
|
|||
|
|
|
|
|
|
|||
Cash dividends declared per common share |
|
$ |
0.15 |
|
$ |
0.15 |
|
|
See Notes to Consolidated Financial Statements.
1
AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENTS OF
INCOME
(Millions, except per share amounts)
(Unaudited)
|
|
Six Months Ended |
|
||||
|
|
June 30, |
|
||||
|
|
2007 |
|
2006 |
|
||
Revenues |
|
|
|
|
|
||
Discount revenue |
|
$ |
7,025 |
|
$ |
6,261 |
|
Net card fees |
|
984 |
|
1,053 |
|
||
Travel commissions and fees |
|
928 |
|
901 |
|
||
Other commissions and fees |
|
1,303 |
|
1,281 |
|
||
Securitization income, net |
|
789 |
|
758 |
|
||
Other |
|
868 |
|
811 |
|
||
Total |
|
11,897 |
|
11,065 |
|
||
Interest income |
|
|
|
|
|
||
Cardmember lending finance revenue |
|
2,882 |
|
2,047 |
|
||
International banking |
|
546 |
|
509 |
|
||
Other |
|
505 |
|
384 |
|
||
Total |
|
3,933 |
|
2,940 |
|
||
Total revenues |
|
15,830 |
|
14,005 |
|
||
Interest expense |
|
|
|
|
|
||
Cardmember lending |
|
816 |
|
523 |
|
||
International banking |
|
261 |
|
181 |
|
||
Charge card and other |
|
955 |
|
706 |
|
||
Total |
|
2,032 |
|
1,410 |
|
||
Revenues net of interest expense |
|
13,798 |
|
12,595 |
|
||
|
|
|
|
|
|
||
Expenses |
|
|
|
|
|
||
Marketing, promotion, rewards and cardmember services |
|
3,292 |
|
3,193 |
|
||
Human resources |
|
2,611 |
|
2,516 |
|
||
Professional services |
|
1,327 |
|
1,219 |
|
||
Occupancy and equipment |
|
749 |
|
711 |
|
||
Communications |
|
232 |
|
226 |
|
||
Other |
|
694 |
|
565 |
|
||
Total |
|
8,905 |
|
8,430 |
|
||
Provisions for losses and benefits |
|
|
|
|
|
||
Charge card |
|
442 |
|
401 |
|
||
Cardmember lending |
|
1,212 |
|
727 |
|
||
International banking and other (including investment certificates) |
|
205 |
|
270 |
|
||
Total |
|
1,859 |
|
1,398 |
|
||
Pretax income from continuing operations |
|
3,034 |
|
2,767 |
|
||
Income tax provision |
|
907 |
|
919 |
|
||
Income from continuing operations |
|
2,127 |
|
1,848 |
|
||
Loss from discontinued operations, net of tax |
|
(13 |
) |
(30 |
) |
||
Net income |
|
$ |
2,114 |
|
$ |
1,818 |
|
|
|
|
|
|
|
||
Earnings per Common Share Basic: |
|
|
|
|
|
||
Income from continuing operations |
|
$ |
1.80 |
|
$ |
1.51 |
|
Loss from discontinued operations |
|
(0.01 |
) |
(0.02 |
) |
||
Net income |
|
$ |
1.79 |
|
$ |
1.49 |
|
|
|
|
|
|
|
||
Earnings per Common Share Diluted: |
|
|
|
|
|
||
Income from continuing operations |
|
$ |
1.76 |
|
$ |
1.48 |
|
Loss from discontinued operations |
|
(0.01 |
) |
(0.03 |
) |
||
Net income |
|
$ |
1.75 |
|
$ |
1.45 |
|
|
|
|
|
|
|
||
Average common shares outstanding for earnings per common share: |
|
|
|
|
|
||
Basic |
|
1,183 |
|
1,224 |
|
||
Diluted |
|
1,207 |
|
1,250 |
|
||
|
|
|
|
|
|
||
Cash dividends declared per common share |
|
$ |
0.30 |
|
$ |
0.27 |
|
See Notes to Consolidated Financial Statements.
2
AMERICAN EXPRESS COMPANY
CONSOLIDATED BALANCE SHEETS
(Millions, except share data)
(Unaudited)
|
|
June 30, |
|
December 31, |
|
||
|
|
2007 |
|
2006 |
|
||
|
|
|
|
|
|
||
Assets |
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
7,371 |
|
$ |
7,956 |
|
Accounts receivable and accrued interest: |
|
|
|
|
|
||
Cardmember receivables, less reserves: 2007, $981; 2006, $981 |
|
37,421 |
|
36,386 |
|
||
Other receivables, less reserves: 2007, $44; 2006, $42 |
|
2,080 |
|
2,465 |
|
||
Investments |
|
21,417 |
|
20,990 |
|
||
Loans: |
|
|
|
|
|
||
Cardmember lending, less reserves: 2007, $1,417; 2006, $1,171 |
|
46,861 |
|
42,135 |
|
||
International banking, less reserves: 2007, $69; 2006, $64 |
|
7,685 |
|
7,160 |
|
||
Other, less reserves: 2007, $42; 2006, $34 |
|
901 |
|
953 |
|
||
Land, buildings and equipment at cost, less accumulated |
|
2,575 |
|
2,448 |
|
||
Other assets |
|
8,061 |
|
7,360 |
|
||
Total assets |
|
$ |
134,372 |
|
$ |
127,853 |
|
|
|
|
|
|
|
||
Liabilities and Shareholders Equity |
|
|
|
|
|
||
Customers deposits |
|
$ |
22,625 |
|
$ |
24,656 |
|
Travelers Cheques outstanding |
|
7,140 |
|
7,215 |
|
||
Accounts payable |
|
9,647 |
|
8,764 |
|
||
Investment certificate reserves |
|
5,626 |
|
6,058 |
|
||
Short-term debt |
|
15,802 |
|
15,162 |
|
||
Long-term debt |
|
49,873 |
|
42,747 |
|
||
Other liabilities |
|
13,024 |
|
12,740 |
|
||
Total liabilities |
|
123,737 |
|
117,342 |
|
||
|
|
|
|
|
|
||
Shareholders equity: |
|
|
|
|
|
||
Common shares, $.20 par value, authorized 3.6 billion shares; issued and outstanding 1,182 million shares in 2007 and 1,199 million shares in 2006 |
|
236 |
|
240 |
|
||
Additional paid-in capital |
|
9,998 |
|
9,638 |
|
||
Retained earnings |
|
1,024 |
|
1,153 |
|
||
Accumulated other comprehensive income (loss), net of tax: |
|
|
|
|
|
||
Net unrealized securities (losses) gains |
|
(118 |
) |
92 |
|
||
Net unrealized derivatives gains |
|
49 |
|
27 |
|
||
Foreign currency translation adjustments |
|
(231 |
) |
(222 |
) |
||
Net unrealized pension and other postretirement benefit costs |
|
(323 |
) |
(417 |
) |
||
Total accumulated other comprehensive loss |
|
(623 |
) |
(520 |
) |
||
Total shareholders equity |
|
10,635 |
|
10,511 |
|
||
Total liabilities and shareholders equity |
|
$ |
134,372 |
|
$ |
127,853 |
|
See Notes to Consolidated Financial Statements.
3
AMERICAN EXPRESS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions)
(Unaudited)
|
|
Six Months Ended |
|
||||
|
|
June 30, |
|
||||
|
|
2007 |
|
2006 |
|
||
Cash Flows from Operating Activities |
|
|
|
|
|
||
Net income |
|
$ |
2,114 |
|
$ |
1,818 |
|
Loss from discontinued operations, net of tax |
|
13 |
|
30 |
|
||
Income from continuing operations |
|
2,127 |
|
1,848 |
|
||
Adjustments to reconcile income from continuing operations to net cash provided by operating activities: |
|
|
|
|
|
||
Provisions for losses and benefits |
|
1,955 |
|
1,381 |
|
||
Depreciation and amortization |
|
339 |
|
320 |
|
||
Deferred taxes, acquisition costs and other |
|
(303 |
) |
191 |
|
||
Stock-based compensation |
|
144 |
|
149 |
|
||
Changes in operating assets and liabilities, net of effects of acquisitions and dispositions: |
|
|
|
|
|
||
Accounts receivable and accrued interest |
|
202 |
|
(23 |
) |
||
Other operating assets |
|
185 |
|
(385 |
) |
||
Accounts payable and other liabilities |
|
827 |
|
970 |
|
||
(Decrease) increase in Travelers Cheques outstanding |
|
(76 |
) |
7 |
|
||
Net cash used in operating activities attributable to discontinued operations |
|
(13 |
) |
(1 |
) |
||
Net cash provided by operating activities |
|
5,387 |
|
4,457 |
|
||
Cash Flows from Investing Activities |
|
|
|
|
|
||
Sale of investments |
|
2,074 |
|
2,308 |
|
||
Maturity and redemption of investments |
|
3,843 |
|
5,986 |
|
||
Purchase of investments |
|
(6,966 |
) |
(8,386 |
) |
||
Net increase in cardmember loans/receivables |
|
(7,355 |
) |
(4,253 |
) |
||
Proceeds from cardmember loan securitizations |
|
2,894 |
|
2,893 |
|
||
Maturities of cardmember loan securitizations |
|
(2,780 |
) |
(3,785 |
) |
||
Loan operations and principal collections for international banking, net |
|
(528 |
) |
(162 |
) |
||
Purchase of land, buildings and equipment |
|
(431 |
) |
(284 |
) |
||
Sale of land, buildings and equipment |
|
23 |
|
20 |
|
||
Dispositions, net of cash sold |
|
19 |
|
456 |
|
||
Net cash used in investing activities attributable to discontinued operations |
|
|
|
(3 |
) |
||
Net cash used in investing activities |
|
(9,207 |
) |
(5,210 |
) |
||
Cash Flows from Financing Activities |
|
|
|
|
|
||
Net change in customers deposits |
|
(2,063 |
) |
(2,670 |
) |
||
Sale of investment certificates |
|
1,593 |
|
2,883 |
|
||
Redemption of investment certificates |
|
(2,049 |
) |
(3,161 |
) |
||
Net increase (decrease) in debt with maturities of three months or less |
|
2,756 |
|
(1,342 |
) |
||
Issuance of debt |
|
12,596 |
|
15,222 |
|
||
Principal payments on debt |
|
(7,883 |
) |
(8,664 |
) |
||
Issuance of American Express common shares and other |
|
541 |
|
536 |
|
||
Repurchase of American Express common shares |
|
(1,871 |
) |
(2,165 |
) |
||
Dividends paid |
|
(359 |
) |
(299 |
) |
||
Net cash (used in) provided by financing activities attributable to discontinued operations |
|
(50 |
) |
4 |
|
||
Net cash provided by financing activities |
|
3,211 |
|
344 |
|
||
Effect of exchange rate changes on cash |
|
24 |
|
81 |
|
||
Net decrease in cash and cash equivalents |
|
(585 |
) |
(328 |
) |
||
Cash and cash equivalents at beginning of period |
|
7,956 |
|
7,126 |
|
||
Cash and cash equivalents at end of period |
|
$ |
7,371 |
|
$ |
6,798 |
|
See Notes to Consolidated Financial Statements.
4
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, 2006. Certain reclassifications of prior period amounts have been made to conform to the current presentation, including revenue and expense reclassifications contained in the current report on Form 8-K dated March 30, 2007. In addition, beginning prospectively as of July 1, 2006, certain card acquisition-related costs were reclassified from other expenses to a reduction in net card fees.
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.
As discussed in the Companys Form 10-Q for the period ended March 31, 2007, the Travelers Cheque and Prepaid Services business and international banking businesses currently included in the Corporate & Other segment were previously included in the U.S. Card Services and International Card & Global Commercial Services segments, respectively, prior to the reportable operating segment modifications made effective in the first quarter of 2007. The financial data for all periods included herein reflect these modifications.
During the second quarter of 2007, the Company announced organizational changes effective July 1, 2007, which reflect a reorganization of the Company into two distinct customer-focused groups: Global Consumer Group and Global Business-to-Business Group. The Company is reviewing the impact of these changes on its reportable operating segment disclosures, and expects financial disclosures to reflect these organizational changes in the third quarter of 2007.
Recently Issued Accounting Standards
The Financial Accounting Standards Board (FASB) has recently issued the following accounting standards, which are effective beginning January 1, 2008. The Company is currently evaluating the impact of these accounting standards.
Statement of Financial Accounting Standard (SFAS) No. 157, Fair Value Measurements (SFAS No. 157), establishes a framework for measuring fair value and applies broadly to financial and non-financial assets and liabilities measured at fair value under existing authoritative accounting pronouncements. SFAS No. 157 establishes a fair value hierarchy that prioritizes inputs to valuation techniques used for financial instruments without active markets and for non-financial assets and liabilities. SFAS No. 157 also expands disclosure requirements regarding methods used to measure fair value and the effects on earnings.
SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115 (SFAS No. 159), provides companies with an option to report selected financial assets and liabilities at fair value.
FASB Staff Position No. FIN 39-1, Amendment of FASB Interpretation No. 39 (FIN 39-1), permits a reporting entity to offset fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) against fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting arrangement. The Company does not expect FIN 39-1 to have a material impact on its Consolidated Financial Statements.
5
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Emerging Issues Task Force Issue No. 06-11, Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards (EITF 06-11), clarifies when income tax benefits for dividends paid on share-based payment awards should be recognized in equity or the income statement. The Company does not expect EITF 06-11 to have a material impact on its Consolidated Financial Statements.
2. Discontinued Operations
Results from discontinued operations included losses related to businesses disposed of in previous years, as follows:
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
(Millions) |
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
||||
Revenues net of interest expense |
|
$ |
|
|
$ |
9 |
|
$ |
|
|
$ |
9 |
|
|
|
|
|
|
|
|
|
|
|
||||
Pretax loss from discontinued operations |
|
$ |
(2 |
) |
$ |
(55 |
) |
$ |
(14 |
) |
$ |
(60 |
) |
Income tax provision (benefit) |
|
3 |
|
(28 |
) |
(1 |
) |
(30 |
) |
||||
Loss from discontinued operations, net of tax |
|
$ |
(5 |
) |
$ |
(27 |
) |
$ |
(13 |
) |
$ |
(30 |
) |
6
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Guarantees
The Company provides cardmember protection plans that cover losses associated with purchased products, as well as certain other guarantees in the ordinary course of business that are within the scope of FASB Financial Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45).
The following table provides information related to such guarantees as of June 30, 2007 and December 31, 2006:
|
|
June 30, 2007 |
|
December 31, 2006 |
|
||||||||
|
|
Maximum amount of |
|
Amount of |
|
Maximum amount of |
|
Amount of |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Type of Guarantee: |
|
|
|
|
|
|
|
|
|
||||
Card and travel operations (c) |
|
$ |
77 |
|
$ |
68 |
|
$ |
75 |
|
$ |
119 |
|
International banking and other (d) |
|
2 |
|
81 |
|
2 |
|
77 |
|
||||
Total |
|
$ |
79 |
|
$ |
149 |
|
$ |
77 |
|
$ |
196 |
|
(a) Calculated based on the hypothetical scenario that all claims occur within the next 12 months.
(b) Included as part of other liabilities on the Companys Consolidated Balance Sheets. The decrease in the liability from December 31, 2006 to June 30, 2007, results substantially from a reduction in merchant-related reserves primarily related to the airline industry.
(c) Includes Credit Card Registry, Merchandise Protection, Account Protection, Merchant Protection, and Baggage Protection. The Company generally has no collateral or other recourse provisions related to these guarantees.
(d) Includes contingent consideration obligations as well as guarantees the Company provides through its international banking business, such as financial letters of credit, performance guarantees, and financial guarantees. The international banking guarantees range in term from three months to one year. The Company receives a fee related to these guarantees, many of which help facilitate cross-border transactions. The maximum potential exposure related to the Companys international banking guarantees at both June 30, 2007 and December 31, 2006, was approximately $1 billion for which the Company held supporting collateral of approximately $920 million and $940 million, respectively.
4. Comprehensive Income
The components of comprehensive income, net of related tax, were as follows:
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
(Millions) |
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
||||
Net income |
|
$ |
1,057 |
|
$ |
945 |
|
$ |
2,114 |
|
$ |
1,818 |
|
Other comprehensive income (losses): |
|
|
|
|
|
|
|
|
|
||||
Net unrealized securities losses (a) |
|
(155 |
) |
(88 |
) |
(210 |
) |
(166 |
) |
||||
Net unrealized derivative gains |
|
32 |
|
23 |
|
22 |
|
33 |
|
||||
Foreign currency translation adjustments |
|
(8 |
) |
137 |
|
(9 |
) |
174 |
|
||||
Net unrealized pension and other postretirement benefit costs (b) |
|
8 |
|
|
|
94 |
|
|
|
||||
Total |
|
$ |
934 |
|
$ |
1,017 |
|
$ |
2,011 |
|
$ |
1,859 |
|
(a) In connection with the initial adoption of SFAS No. 155, Accounting for Certain Hybrid Financial Instruments an amendment of FASB Statements No. 133 and 140 (SFAS No. 155), as of January 1, 2007, the Company recognized a gain of $80 million ($50 million after-tax) related to the fair value of the interest-only strips, which was recorded in other comprehensive income (loss) in previous periods. Changes in the fair value of the interest-only strip subsequent to the adoption of this standard are reflected in securitization income, net.
(b) The six months ended June 30, 2007, represents primarily the impact of remeasuring U.S. plan obligations in January 2007 based on updated census and claims information, which increased the funded status of the Companys pension and other postretirement benefit obligations and the recognition of previously unamortized losses/costs as a result of the curtailment discussed below in Note 5.
7
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Retirement Plans
The components of the net pension and postretirement benefit cost for all defined benefit plans accounted for under SFAS No. 87, Employers Accounting for Pensions, and SFAS No. 106, Employers Accounting for Postretirement Benefits Other Than Pensions, were as follows:
|
|
Three Months Ended June 30, |
|
||||||||||
|
|
Pension Plans |
|
Postretirement Plans |
|
||||||||
(Millions) |
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
||||
Service cost |
|
$ |
27 |
|
$ |
29 |
|
$ |
1 |
|
$ |
1 |
|
Interest cost |
|
34 |
|
31 |
|
5 |
|
5 |
|
||||
Expected return on plan assets |
|
(43 |
) |
(37 |
) |
N/A |
|
N/A |
|
||||
Amortization of prior service cost |
|
1 |
|
1 |
|
|
|
|
|
||||
Recognized net actuarial loss |
|
10 |
|
9 |
|
2 |
|
4 |
|
||||
Net periodic benefit cost |
|
$ |
29 |
|
$ |
33 |
|
$ |
8 |
|
$ |
10 |
|
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
Pension Plans |
|
Postretirement Plans |
|
||||||||
(Millions) |
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
||||
Service cost |
|
$ |
55 |
|
$ |
58 |
|
$ |
3 |
|
$ |
3 |
|
Interest cost |
|
70 |
|
62 |
|
10 |
|
10 |
|
||||
Expected return on plan assets |
|
(84 |
) |
(74 |
) |
N/A |
|
N/A |
|
||||
Amortization of prior service cost |
|
1 |
|
1 |
|
(1 |
) |
(1 |
) |
||||
Recognized net actuarial loss |
|
20 |
|
19 |
|
4 |
|
8 |
|
||||
Settlement/curtailment (gain)/loss (a) |
|
(63 |
) |
1 |
|
|
|
|
|
||||
Net periodic benefit cost |
|
$ |
(1 |
) |
$ |
67 |
|
$ |
16 |
|
$ |
20 |
|
(a) In January 2007, the Company approved amendments to its defined benefit plans in the United States effective July 1, 2007, which provide that active participants will immediately vest in their accrued benefits, but no longer accrue future benefits other than interest credits under the plans. As a result of this action, there was a net reduction in the projected benefit obligation of $91 million and a related curtailment gain of $63 million ($39 million after-tax), at the time of the plan amendment. In combination with these changes, the Company has modified the existing defined contribution plan in the United States to provide for greater Company contributions to employees who were employed by the Company at March 31, 2007.
8
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. Earnings per Common Share (EPS)
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 are as follows:
|
|
Three Months Ended |
|
Six Months Ended |
|
|||||||||
(Millions, except per share amounts) |
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
|||||
Numerator: |
|
|
|
|
|
|
|
|
|
|||||
Income from continuing operations |
|
$ |
1,062 |
|
$ |
972 |
|
$ |
2,127 |
|
$ |
1,848 |
|
|
Loss from discontinued operations, net of tax |
|
(5 |
) |
(27 |
) |
(13 |
) |
(30 |
) |
|||||
Net income |
|
$ |
1,057 |
|
$ |
945 |
|
$ |
2,114 |
|
$ |
1,818 |
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Denominator: |
|
|
|
|
|
|
|
|
|
|||||
Basic: |
Weighted-average shares outstanding during the period |
|
1,179 |
|
1,217 |
|
1,183 |
|
1,224 |
|
||||
Add: |
Dilutive effect of stock options, restricted stock awards and other dilutive securities |
|
24 |
|
25 |
|
24 |
|
26 |
|
||||
Diluted |
|
1,203 |
|
1,242 |
|
1,207 |
|
1,250 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|||||
Basic EPS: |
|
|
|
|
|
|
|
|
|
|||||
Income from continuing operations |
|
$ |
0.90 |
|
$ |
0.80 |
|
$ |
1.80 |
|
$ |
1.51 |
|
|
Loss from discontinued operations |
|
|
|
(0.02 |
) |
(0.01 |
) |
(0.02 |
) |
|||||
Net income |
|
$ |
0.90 |
|
$ |
0.78 |
|
$ |
1.79 |
|
$ |
1.49 |
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Diluted EPS: |
|
|
|
|
|
|
|
|
|
|||||
Income from continuing operations |
|
$ |
0.88 |
|
$ |
0.78 |
|
$ |
1.76 |
|
$ |
1.48 |
|
|
Loss from discontinued operations |
|
|
|
(0.02 |
) |
(0.01 |
) |
(0.03 |
) |
|||||
Net income |
|
$ |
0.88 |
|
$ |
0.76 |
|
$ |
1.75 |
|
$ |
1.45 |
|
For the three months ended June 30, 2007 and 2006,
the dilutive effect of unexercised stock options excludes 9 million and 6
million options, respectively, from the computation of EPS because inclusion of
the options would have been anti-dilutive.
Similarly, the number of these excluded stock options for the six months
ended June 30, 2007 and 2006, was 8 million and 6 million, respectively.
See Notes 8 and 18 to the Consolidated Financial Statements in the Companys
Annual Report on
Form 10-K for the year ended December 31, 2006, for discussion
of the Companys subordinated debentures, including the circumstances under
which additional common shares would be reflected in the computation of EPS.
9
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. Reportable Operating Segment Information
The Company is a leading global payments, network, and travel company that is principally engaged in businesses comprising three reportable operating segments: U.S. Card Services (USCS), International Card & Global Commercial Services (ICGCS), and Global Network & Merchant Services (GNMS). During 2006, the Company completed the sales of its card and merchant-related activities in Brazil, Malaysia, and Indonesia, which were included in ICGCS prior to the sales. The Company will continue to maintain its presence in the card and merchant-related businesses within Brazil, Malaysia, and Indonesia through its Global Network Services arrangements, which are reflected in the GNMS segment.
The following table presents certain operating segment information, which reflects the modifications made effective in the first quarter of 2007 as discussed in Note 1:
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
(Millions) |
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
||||
Revenues, excluding interest income: |
|
|
|
|
|
|
|
|
|
||||
USCS |
|
$ |
2,921 |
|
$ |
2,760 |
|
$ |
5,753 |
|
$ |
5,339 |
|
ICGCS |
|
2,051 |
|
1,980 |
|
3,948 |
|
3,791 |
|
||||
GNMS |
|
886 |
|
762 |
|
1,686 |
|
1,446 |
|
||||
Corporate & Other, including adjustments and eliminations |
|
269 |
|
235 |
|
510 |
|
489 |
|
||||
Total |
|
$ |
6,127 |
|
$ |
5,737 |
|
$ |
11,897 |
|
$ |
11,065 |
|
|
|
|
|
|
|
|
|
|
|
||||
Interest income: |
|
|
|
|
|
|
|
|
|
||||
USCS |
|
$ |
1,232 |
|
$ |
814 |
|
$ |
2,326 |
|
$ |
1,489 |
|
ICGCS |
|
431 |
|
353 |
|
808 |
|
698 |
|
||||
GNMS |
|
1 |
|
3 |
|
1 |
|
4 |
|
||||
Corporate & Other, including adjustments and eliminations |
|
408 |
|
378 |
|
798 |
|
749 |
|
||||
Total |
|
$ |
2,072 |
|
$ |
1,548 |
|
$ |
3,933 |
|
$ |
2,940 |
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense: |
|
|
|
|
|
|
|
|
|
||||
USCS |
|
$ |
593 |
|
$ |
404 |
|
$ |
1,155 |
|
$ |
760 |
|
ICGCS |
|
323 |
|
250 |
|
601 |
|
472 |
|
||||
GNMS |
|
(79 |
) |
(74 |
) |
(156 |
) |
(137 |
) |
||||
Corporate & Other, including adjustments and eliminations |
|
232 |
|
163 |
|
432 |
|
315 |
|
||||
Total |
|
$ |
1,069 |
|
$ |
743 |
|
$ |
2,032 |
|
$ |
1,410 |
|
|
|
|
|
|
|
|
|
|
|
||||
Revenues net of interest expense: |
|
|
|
|
|
|
|
|
|
||||
USCS |
|
$ |
3,560 |
|
$ |
3,170 |
|
$ |
6,924 |
|
$ |
6,068 |
|
ICGCS |
|
2,159 |
|
2,083 |
|
4,155 |
|
4,017 |
|
||||
GNMS |
|
966 |
|
839 |
|
1,843 |
|
1,587 |
|
||||
Corporate & Other, including adjustments and eliminations |
|
445 |
|
450 |
|
876 |
|
923 |
|
||||
Total |
|
$ |
7,130 |
|
$ |
6,542 |
|
$ |
13,798 |
|
$ |
12,595 |
|
|
|
|
|
|
|
|
|
|
|
||||
Income (Loss) from continuing operations: |
|
|
|
|
|
|
|
|
|
||||
USCS |
|
$ |
580 |
|
$ |
594 |
|
$ |
1,224 |
|
$ |
1,121 |
|
ICGCS |
|
277 |
|
227 |
|
512 |
|
370 |
|
||||
GNMS |
|
266 |
|
200 |
|
502 |
|
366 |
|
||||
Corporate & Other |
|
(61 |
) |
(49 |
) |
(111 |
) |
(9 |
) |
||||
Total |
|
$ |
1,062 |
|
$ |
972 |
|
$ |
2,127 |
|
$ |
1,848 |
|
10
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. Restructuring Charges
During the three months ended June 30, 2007, the Company recorded restructuring charges related to the Companys corporate travel and prepaid services businesses. During the six months ended June 30, 2007, the Company recorded restructuring charges related to the Companys technology, prepaid services, and corporate travel areas. The charges related to severance obligations are included in human resources. Other exit costs are included in occupancy and equipment, professional services, and other expenses in the Companys Consolidated Statements of Income. Cash payments related to remaining restructuring liabilities are expected to be completed by the end of the fourth quarter of 2009, except for certain lease obligations which will continue until their expiration in 2012.
The following table summarizes by category the Companys restructuring charge activity for each of the Companys reportable operating segments:
Six Months Ended June 30, 2007
|
|
Liability balance at |
|
Restructuring charges,net of |
|
Cash paid |
|
Other-non-cash(b) |
|
Liability balance at |
|
||||||||||||||||||||
(Millions) |
|
Severance |
|
Other |
|
Total |
|
Severance(a) |
|
Other |
|
Total |
|
Severance |
|
Other |
|
Total |
|
Severance |
|
Other |
|
Total |
|
Severance |
|
Other |
|
Total |
|
USCS |
|
$ |
16 |
|
$ |
|
|
$ |
16 |
|
$ |
8 |
|
$ |
5 |
|
$ |
13 |
|
$ |
(4 |
) |
$ |
|
|
$ |
(4 |
) |
$ |
|
|
$ |
(5 |
) |
$ |
(5 |
) |
$ |
20 |
|
$ |
|
|
$ |
20 |
|
ICGCS |
|
40 |
|
4 |
|
44 |
|
13 |
|
|
|
13 |
|
(19 |
) |
(1 |
) |
(20 |
) |
|
|
|
|
|
|
34 |
|
3 |
|
37 |
|
|||||||||||||||
GNMS |
|
7 |
|
|
|
7 |
|
2 |
|
1 |
|
3 |
|
(2 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
7 |
|
1 |
|
8 |
|
|||||||||||||||
Corporate & Other |
|
26 |
|
|
|
26 |
|
(4 |
) |
7 |
|
3 |
|
(7 |
) |
|
|
(7 |
) |
(1 |
) |
(2 |
) |
(3 |
) |
14 |
|
5 |
|
19 |
|
|||||||||||||||
Total |
|
$ |
89 |
|
$ |
4 |
|
$ |
93 |
|
$ |
19 |
|
$ |
13 |
|
$ |
32 |
|
$ |
(32 |
) |
$ |
(1 |
) |
$ |
(33 |
) |
$ |
(1 |
) |
$ |
(7 |
) |
$ |
(8 |
) |
$ |
75 |
|
$ |
9 |
|
$ |
84 |
|
Three Months Ended June 30, 2007
|
|
Liability balance at |
|
Restructuring charges,
net of |
|
Cash paid |
|
Other-non-cash |
|
Liability balance at |
|
||||||||||||||||||||
(Millions) |
|
Severance |
|
Other |
|
Total |
|
Severance(a) |
|
Other |
|
Total |
|
Severance |
|
Other |
|
Total |
|
Severance |
|
Other |
|
Total |
|
Severance |
|
Other |
|
Total |
|
USCS |
|
$ |
24 |
|
$ |
|
|
$ |
24 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
(4 |
) |
$ |
|
|
$ |
(4 |
) |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
20 |
|
$ |
|
|
$ |
20 |
|
ICGCS |
|
38 |
|
3 |
|
41 |
|
6 |
|
|
|
6 |
|
(10 |
) |
|
|
(10 |
) |
|
|
|
|
|
|
34 |
|
3 |
|
37 |
|
|||||||||||||||
GNMS |
|
9 |
|
|
|
9 |
|
|
|
1 |
|
1 |
|
(2 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
7 |
|
1 |
|
8 |
|
|||||||||||||||
Corporate & Other |
|
20 |
|
2 |
|
22 |
|
(3 |
) |
3 |
|
|
|
(3 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
14 |
|
5 |
|
19 |
|
|||||||||||||||
Total |
|
$ |
91 |
|
$ |
5 |
|
$ |
96 |
|
$ |
3 |
|
$ |
4 |
|
$ |
7 |
|
$ |
(19 |
) |
$ |
|
|
$ |
(19 |
) |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
75 |
|
$ |
9 |
|
$ |
84 |
|
(a) Reversals of $4 million in Corporate & Other were recorded for the three months ended June 30, 2007, and $2 million in USCS, $2 million in ICGCS, $1 million in GNMS and $6 million in Corporate & Other were recorded for the six months ended June 30, 2007, primarily due to a greater portion of impacted employees finding other opportunities with the Company than was originally anticipated.
(b) Represents primarily asset write-downs.
The Company makes decisions on restructuring initiatives as the economic environment dictates. As of June 30, 2007, the total expenses to be incurred for previously approved restructuring activities that were in-progress are not expected to be materially different than the cumulative expenses incurred to date for these programs. The amounts in the table below relate to the in-progress restructuring programs initiated at various dates between the fourth quarter of 2004 and the second quarter of 2007.
Cumulative Restructuring Expense Incurred To Date on In-Progress Restructuring Programs
(Millions) |
|
Severance |
|
Other |
|
Total |
|
|||
USCS |
|
$ |
25 |
|
$ |
4 |
|
$ |
29 |
|
ICGCS |
|
164 |
|
31 |
|
195 |
|
|||
GNMS |
|
10 |
|
1 |
|
11 |
|
|||
Corporate & Other |
|
100 |
|
20 |
|
120 |
|
|||
Total |
|
$ |
299 |
|
$ |
56 |
|
$ |
355 |
|
11
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. Income Taxes
The Company adopted FASB Financial Interpretation No. 48, Accounting for Uncertainty in Income Taxes an interpretation of FASB Statement No. 109 (FIN 48) as of January 1, 2007. The initial adoption of FIN 48 resulted in a charge of approximately $127 million to the January 1, 2007 balance of retained earnings.
As of January 1, 2007, and including the impact of the initial adoption charge to retained earnings, the Companys total gross benefits for tax positions that have not been recognized through the financial statements were approximately $1.1 billion, exclusive of interest and penalties described below. Included in the $1.1 billion are approximately $636 million of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate in a future period. There have been no significant changes in the Companys unrecognized tax benefits as of June 30, 2007.
The Companys continuing practice is to recognize interest and penalties relating to unrecognized tax benefits in the income tax provision, which therefore has an impact on the effective tax rate. As of January 1, 2007, the Company had $222 million ($153 million after-tax) accrued for the payment of interest and penalties. There have been no significant changes in the Companys accrual for the payment of interest and penalties as of June 30, 2007.
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 and open for examination vary by jurisdiction. The Company is currently under examination by the IRS for the years 1997 2004.
Given the inherent complexities of the business and that the Company is subject to taxation in a substantial number of jurisdictions, the Company routinely assesses the likelihood of additional assessments in each of the taxing jurisdictions and has established a liability for unrecognized tax benefits that management believes to be adequate. Once established, unrecognized tax benefits are adjusted if more accurate information is available, or a change in circumstance, or an event occurs necessitating a change to the liability. It is reasonably possible that the unrecognized tax benefits will significantly increase or decrease within the next twelve months. Due to the inherent complexities and the number of tax years currently under examination, it is not possible to quantify the impact such changes may have on the effective tax rate.
The following table summarizes the Companys effective tax rate:
|
|
Three Months Ended |
|
Six Months Ended |
|
Full Year |
|
Effective tax rate |
|
26% |
|
30% |
|
30% |
|
(a) The effective tax rate for the three and six months ended June 30, 2007, reflected a $65 million tax benefit from the IRS related to the treatment of certain prior years card fee income. The impact of the tax benefit on the effective tax rate for the six months ended June 30, 2007, was partially offset by the income tax impact of the regulatory and legal exposure reserve established primarily at American Express Bank International.
12
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10. Contingencies
The Company and its subsidiaries are involved in a number of legal and arbitration proceedings, including class actions, concerning matters arising in connection with the conduct of their respective business activities. The Company believes it has meritorious defenses to each of these actions and intends to defend them vigorously. In the course of its business, the Company and its subsidiaries are also subject to governmental examinations, information gathering requests, subpoenas, inquiries and investigations. The Company believes that it is not a party to, nor are any of its properties the subject of, any pending legal, arbitration, regulatory, tax or investigative proceedings that would have a material adverse effect on the Companys consolidated financial condition 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.
11. Subsequent Event
On August 6, 2007, American Express Bank International (AEBI), a subsidiary of American Express Bank Ltd.(AEBL), entered into a settlement with the Department of Justice (DOJ), the Federal Reserve, and the Financial Crimes Enforcement Network (FinCEN), relating to violations by AEBI of the anti-money laundering (AML) requirements of the Bank Secrecy Act. An additional finding by FinCEN that the Companys wholly-owned subsidiary, American Express Travel Related Services Company, Inc. (TRS), violated the suspicious transaction reporting requirements of the Bank Secrecy Act was also settled. The total amount in settlement of these matters was $65 million (of which $5 million was attributable to the TRS activities) for which the Company was fully reserved as of June 30, 2007.
Also on August 6, 2007, AEBL entered into a Written Agreement with the New York State Banking Department, the primary regulator of AEBL, under which AEBL has agreed to implement certain enhancements and remedial measures to its AML compliance program. There is no monetary fine or penalty associated with this agreement.
The Company has also committed to its consolidated supervisor, the Office of Thrift Supervision, that it will complete its efforts to develop and implement an enterprise wide AML compliance program.
13
ITEM 2. MANAGEMENTS 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 and services including charge and credit cards; travel agency services; travel and business expense management products and services; network services and merchant acquisition and merchant processing for the Companys network partners and proprietary payments businesses; lending products; point-of-sale and back-office products and services for merchants; magazine publishing; stored value products such as Travelers Cheques and gift cards; and international banking products. The Companys various products and services are sold globally to diverse customer groups, including consumers, small businesses, mid-market companies, large corporations, and banking institutions. These products and services are sold through various channels including direct mail, on-line applications, targeted sales forces, and direct response advertising.
The Company generates revenue from a variety of sources including payment products, such as charge and credit cards, travel services, and stored value products, including Travelers Cheques. Charge and credit cards generate four types of revenue for the Company:
Discount revenue, which is the Companys largest revenue source, represents fees charged to merchants when cardmembers use their cards to purchase goods and services on the Companys network;
Finance revenue, which is earned on outstanding balances related to the cardmember lending portfolio;
Card fees, which are earned for annual membership, and other commissions and fees such as foreign exchange conversion fees and card-related fees and assessments; and
Securitization income, net which reflects the net earnings related to cardmember loans financed through securitization activities.
In addition to funding and operating costs associated with these activities, other major expense categories are related to marketing and rewards 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 (which focuses on generating revenues primarily by driving spending on its cards and secondarily by finance charges and fees) has significant competitive advantages. Average spending per cardmember, which is substantially higher than the Companys competitors, represents greater value to merchants in the form of loyal customers and higher sales. This gives the Company the ability overall to earn a premium discount rate and invest in greater value-added services for merchants and cardmembers. As a result of the higher revenues generated from higher spending, 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.
The Company creates shareholder value by focusing on the following elements:
Driving growth principally through organic opportunities and related business strategies, as well as joint ventures and selected acquisitions;
Delivering returns well in excess of the Companys cost of capital; and
Distributing excess capital to shareholders through dividends and stock repurchases.
Overall, it is managements priority to increase shareholder value over the moderate to long term by achieving the following long-term financial targets, on average and over time:
Revenues net of interest expense growth of at least 8 percent;
Earnings per share growth of 12 to 15 percent; and
Return on average equity (ROE) of 33 to 36 percent.
The relatively high ROE target reflects the success of the Companys spend-centric business model and its effectiveness in capturing high spending consumer, small business, and corporate cardmembers.
14
Assuming the Company achieves its financial objectives noted above, it will seek to return to shareholders an average of 65 percent of capital generated, subject to business mix, acquisitions, and rating agency requirements.
As discussed in the Companys Form 10-Q for the period ended March 31, 2007, the Travelers Cheque and Prepaid Services business and international banking businesses currently included in the Corporate & Other segment were previously included in the U.S. Card Services and International Card & Global Commercial Services segments, respectively, prior to the reportable operating segment modifications made effective in the first quarter of 2007. The financial data for all periods included herein reflect these modifications. For additional information regarding the nature of the Companys discussions with the U.S. Securities and Exchange Commission (SEC), see Item 1A. Risk Factors and Item 1B. Unresolved Staff Comments in the Companys Annual Report on Form 10-K for the year ended December 31, 2006.
During the second quarter of 2007, the Company announced organizational changes effective July 1, 2007, which reflect a reorganization of the Company into two distinct customer-focused groups: Global Consumer Group and Global Business-to-Business Group. The Company is reviewing the impact of these changes on its reportable operating segment disclosures, and expects financial disclosures to reflect these organizational changes in the third quarter of 2007.
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.
15
American Express Company
Selected Statistical Information
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
(Billions, except percentages and where indicated) |
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
||||
Card billed business(a): |
|
|
|
|
|
|
|
|
|
||||
United States |
|
$ |
115.7 |
|
$ |
102.5 |
|
$ |
221.1 |
|
$ |
195.4 |
|
Outside the United States |
|
45.4 |
|
38.0 |
|
86.2 |
|
72.3 |
|
||||
Total |
|
$ |
161.1 |
|
$ |
140.5 |
|
$ |
307.3 |
|
$ |
267.7 |
|
Total cards-in-force (millions)(b): |
|
|
|
|
|
|
|
|
|
||||
United States |
|
50.5 |
|
45.4 |
|
50.5 |
|
45.4 |
|
||||
Outside the United States |
|
31.7 |
|
29.0 |
|
31.7 |
|
29.0 |
|
||||
Total |
|
82.2 |
|
74.4 |
|
82.2 |
|
74.4 |
|
||||
Basic cards-in-force (millions)(b): |
|
|
|
|
|
|
|
|
|
||||
United States |
|
39.2 |
|
34.8 |
|
39.2 |
|
34.8 |
|
||||
Outside the United States |
|
27.0 |
|
24.1 |
|
27.0 |
|
24.1 |
|
||||
Total |
|
66.2 |
|
58.9 |
|
66.2 |
|
58.9 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Average discount rate(c) |
|
2.57 |
% |
2.57 |
% |
2.57 |
% |
2.57 |
% |
||||
Average basic cardmember spending (dollars)(d) |
|
$ |
3,049 |
|
$ |
2,821 |
|
$ |
5,868 |
|
$ |
5,437 |
|
Average fee per card (dollars)(d) |
|
$ |
36 |
|
$ |
34 |
|
$ |
35 |
|
$ |
34 |
|
(a) Card billed business includes activities (including cash advances) related to proprietary cards, cards issued under network partnership agreements, and certain insurance fees charged on proprietary cards.
(b) Total cards-in-force represents the number of cards that are issued and outstanding. Proprietary basic consumer cards-in-force includes basic cards issued to the primary account owner and does not include additional supplemental cards issued on that account. Proprietary basic small business and corporate cards-in-force include basic and supplemental cards issued to employee cardmembers. Non-proprietary basic cards-in-force includes all cards that are issued and outstanding under network partnership agreements.
(c) 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.
(d) Average basic cardmember spending and average fee per card are computed from proprietary card activities only. Average fee per card is computed based on net card fees excluding the amortization of deferred direct acquisition costs.
16
Selected Statistical Information (continued)
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
June 30, |
|
June 30, |
|
||||||||
(Billions, except percentages and where indicated) |
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
||||
Worldwide cardmember receivables: |
|
|
|
|
|
|
|
|
|
||||
Total receivables |
|
$ |
38.4 |
|
$ |
34.7 |
|
$ |
38.4 |
|
$ |
34.7 |
|
90 days past due as a % of total |
|
2.7 |
% |
2.8 |
% |
2.7 |
% |
2.8 |
% |
||||
Loss reserves (millions): |
|
$ |
981 |
|
$ |
948 |
|
$ |
981 |
|
$ |
948 |
|
% of receivables |
|
2.6 |
% |
2.7 |
% |
2.6 |
% |
2.7 |
% |
||||
% of 90 days past due |
|
95 |
% |
98 |
% |
95 |
% |
98 |
% |
||||
Net loss ratio as a % of charge volume |
|
0.24 |
% |
0.24 |
% |
0.23 |
% |
0.21 |
% |
||||
Worldwide cardmember lending owned basis(a): |
|
|
|
|
|
|
|
|
|
||||
Total loans |
|
$ |
48.3 |
|
$ |
36.3 |
|
$ |
48.3 |
|
$ |
36.3 |
|
30 days past due loans as a % of total |
|
2.8 |
% |
2.7 |
% |
2.8 |
% |
2.7 |
% |
||||
Loss reserves (millions): |
|
|
|
|
|
|
|
|
|
||||
Beginning balance |
|
$ |
1,271 |
|
$ |
1,053 |
|
$ |
1,171 |
|
$ |
996 |
|
Provision |
|
606 |
|
376 |
|
1,148 |
|
675 |
|
||||
Net write offs |
|
(473 |
) |
(331 |
) |
(912 |
) |
(601 |
) |
||||
Other |
|
13 |
|
(12 |
) |
10 |
|
16 |
|
||||
Ending balance |
|
$ |
1,417 |
|
$ |
1,086 |
|
$ |
1,417 |
|
$ |
1,086 |
|
% of loans |
|
2.9 |
% |
3.0 |
% |
2.9 |
% |
3.0 |
% |
||||
% of past due |
|
106 |
% |
113 |
% |
106 |
% |
113 |
% |
||||
Average loans |
|
$ |
45.6 |
|
$ |
35.2 |
|
$ |
44.3 |
|
$ |
34.0 |
|
Net write-off rate |
|
4.1 |
% |
3.8 |
% |
4.1 |
% |
3.5 |
% |
||||
Net finance revenue(b)/average loans |
|
9.5 |
% |
9.4 |
% |
9.4 |
% |
9.0 |
% |
||||
Worldwide cardmember lending managed basis(c): |
|
|
|
|
|
|
|
|
|
||||
Total loans |
|
$ |
68.6 |
|
$ |
56.5 |
|
$ |
68.6 |
|
$ |
56.5 |
|
30 days past due loans as a % of total |
|
2.6 |
% |
2.5 |
% |
2.6 |
% |
2.5 |
% |
||||
Loss reserves (millions): |
|
|
|
|
|
|
|
|
|
||||
Beginning balance |
|
$ |
1,787 |
|
$ |
1,554 |
|
$ |
1,622 |
|
$ |
1,469 |
|
Provision |
|
780 |
|
478 |
|
1,577 |
|
871 |
|
||||
Net write offs |
|
(662 |
) |
(474 |
) |
(1,290 |
) |
(878 |
) |
||||
Other |
|
12 |
|
(12 |
) |
8 |
|
84 |
|
||||
Ending balance |
|
$ |
1,917 |
|
$ |
1,546 |
|
$ |