EXHIBIT 99.3
[LOGO OF AMERICAN EXPRESS COMPANY]
2006
FOURTH QUARTER/FULL YEAR
EARNINGS SUPPLEMENT
THE ENCLOSED SUMMARY SHOULD BE READ IN CONJUNCTION WITH THE TEXT AND
STATISTICAL TABLES INCLUDED IN AMERICAN EXPRESS COMPANY'S (THE
"COMPANY" OR "AXP") FOURTH QUARTER EARNINGS RELEASE.
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THIS PRESENTATION CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT ARE
SUBJECT TO RISKS AND UNCERTAINTIES AND SPEAK ONLY AS OF THE DATE ON
WHICH THEY ARE MADE. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THESE FORWARD-LOOKING STATEMENTS, INCLUDING
THE COMPANY'S FINANCIAL AND OTHER GOALS, ARE SET FORTH ON PAGES 55-56 IN
THE COMPANY'S 2005 ANNUAL REPORT TO SHAREHOLDERS AND IN ITS 2005 ANNUAL
REPORT ON FORM 10-K, AND OTHER REPORTS, ON FILE WITH THE SECURITIES AND
EXCHANGE COMMISSION.
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AMERICAN EXPRESS COMPANY
FOURTH QUARTER 2006
HIGHLIGHTS
o Fourth quarter diluted EPS from continuing operations of $0.76 increased
27% versus $0.60 last year. Net revenues rose 13%. For the trailing 12
months, return on equity (ROE) was 35%.
- 4Q `06 Income from continuing operations included:
-- A $68MM ($42MM after-tax) gain related to the rebalancing of our
Travelers Cheque and gift card investment portfolio to lengthen
average maturities in order to better match the expected timing of
the redemption of outstanding Travelers Cheque and Gift Card products,
as referenced below;
-- $52MM of tax benefits related principally to certain foreign losses
and the finalization of state tax returns; and
-- A substantial benefit within the U.S. Card Services ("USCS") segment,
reflecting the higher write-offs last year related to increased
bankruptcy filings resulting from the October 17, 2005 bankruptcy
legislation, partially offset by loan and spending volume growth.
- 4Q '05 Income from continuing operations included a $60MM tax benefit
primarily related to the finalization of state tax returns.
- 4Q '06 and 4Q '05 Income from continuing operations also included
$64MM ($42MM after-tax) and $65MM ($42MM after-tax), respectively, of
reengineering costs related to restructuring efforts primarily in our
business travel, operations and technology activities.
- On September 30, 2005, the Company completed the distribution of all
of the outstanding shares of Ameriprise Financial, Inc. (formerly
American Express Financial Advisors) to its shareholders. This
non-cash distribution was tax-free to the Company's shareholders.
During 3Q `05, the Company also sold its Tax and Business Services
("TBS") business. In addition, in 2Q '06, the Company completed the
sale of its international banking operations in Brazil to Banco
Bradesco S.A. The operating results, gain or loss on the sales, and
assets and liabilities related to businesses spun-off and sold are
included in discontinued operations in the consolidated financial
statements.
-- 4Q '06 results reflected $3MM of expense from discontinued
operations, primarily related to an adjustment to the Brazilian
banking business sale, versus $6MM of expense last year.
-- Including discontinued operations, diluted EPS on a net income basis
of $0.75 increased 27% versus last year.
- During 4Q `06, the Company increased its Return on Equity target to
33 to 36%. The new target represents an increase from the prior range
of 28 to 30%, which was increased in 2005 in anticipation of the spin-off
of Ameriprise, from the 18 to 20% level that had been in effect since
1993. The new ROE target reflects the unique financial characteristics
of the American Express spend-centric model and its success in capturing
the spending of affluent consumers, small businesses and corporate
Cardmembers. The Company's other on average and over time financial
targets of at least 8% revenue growth and 12 to 15% earnings per share
growth, remain unchanged.
o Compared with the fourth quarter of 2005:
- Worldwide billed business of $153.5B increased 16% on continued
strong growth within both the proprietary and network businesses. A
comparatively weaker U.S. dollar resulted in a 2% benefit within the
reported worldwide growth rate;
- Worldwide total cards in force of 78.0MM increased 10%, up 7.0MM from
last year and 1.5MM during 4Q `06, as proprietary and network card
growth remained strong;
- Worldwide average spending per proprietary basic card in force
increased 7% versus last year despite the suppressing effect of
substantial card additions over the past few years;
- Worldwide lending balances of $43.3B on an owned basis increased 31%;
on a managed basis, worldwide lending balances of $63.5B were up 17%; and
- Underlying card credit quality continued to be well controlled and
reserve coverage ratios remained strong.
o Additional items of note included:
- Marketing, promotion, rewards and cardmember services costs increased
10% versus 4Q '05, reflecting higher marketing and promotion expenses
and greater rewards costs. Marketing expenses continued to reflect
relatively high levels of spending related to various business-building
initiatives, but lower costs versus last year related to the Company's
ongoing global "My Life, My Card (SM)" advertising campaign, which was
in a more active phase during 2005. The higher rewards costs continued
to reflect volume growth, a higher redemption rate, and strong
cardmember loyalty program participation.
- Total provisions for losses and benefits increased 10% versus 4Q '05,
reflecting growth in business volumes and the loan portfolio, a larger
merchant-related provision and higher interest-rate related costs within
the investment certificates business, partially offset by the negative
impact in 4Q '05 of the October, 2005 U.S. bankruptcy legislation.
-1-
AMERICAN EXPRESS COMPANY
FOURTH QUARTER 2006
HIGHLIGHTS
- The Company's reengineering initiatives delivered in excess of $450MM
of additional benefits this quarter, including significant carry-over
benefits from certain initiatives begun in prior periods. Revenue-related
reengineering activities continue to drive a significant portion of the
total benefits, representing more than 35% of the benefits delivered in
4Q '06.
- The 14% increase in human resources expense in 4Q `06 reflects the
impact of merit increases and larger incentive, benefit and
severance-related costs, partially offset by a relatively flat level
of employees versus 4Q `05.
-- Compared with last year, the total employee count of 65,400
decreased by 300 employees or less than 1%; compared with last
quarter, the employee count increased 1,200 or 2%.
- Rising interest rates continued to negatively impact results as
interest expense rose 36% and international banking-related spreads
narrowed.
- During 4Q `06, the Company executed a rebalancing program to better
align the maturity profile of the Travelers Cheque and Gift Card
investment portfolio with its business liquidity needs. Certain call
features in some of the municipal bonds within the portfolio were
expected to accelerate their redemptions, which would cause
anticipated total bond proceeds in certain years to exceed the
business' forecasted liquidity needs. The Company sold bonds with
anticipated maturities in years in which proceeds would exceed business
needs and reinvested the principal into longer term securities,
resulting in a gain of $68MM ($42MM after-tax) in the USCS segment.
- In September 2006, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 158, "Employers'
Accounting for Defined Benefit Pension and Other Postretirement Plans
- an amendment of the FASB Statements No. 87, 88, 106, and 132(R)"
("SFAS No. 158"), which requires the funded status of pension and
other postretirement plans to be recorded on the balance sheet as of
December 31, 2006, with a corresponding offset, net of tax, to be
recorded in accumulated other comprehensive income (loss) within
shareholders' equity. This did not result in an immediate charge to
earnings as the previously unrecognized gains or losses will be
amortized prospectively as a net periodic pension expense in future
periods. The adoption of SFAS No. 158's balance sheet requirements at
December 31, 2006 resulted in a reduction to shareholders' equity of
$396MM, net of tax.
o During the quarter, American Express continued to invest in growth
opportunities through expanded products and services.
In our proprietary business we:
- Launched the Starwood Preferred Guest(R) Business Credit Card,
incorporating programs and services tailored specifically to the
small business owner, including the OPEN Savings(SM) program and
employee spend management tools. Simultaneously, we enhanced and
relaunched the Starwood Preferred Guest(R) Credit Card for consumers,
enabling Cardmembers to take advantage of greater benefits and richer
rewards.
- Introduced the American Express SimplyCash (SM) Business Card
offering automatic cash-back rewards for small business owners
through monthly rebates within the Cardmembers' statements.
Cardmembers receive 5% cash back each month on gas, office supplies
and wireless charges, and 1% cash back on nearly all other purchases,
with no spending limits or caps and no annual fee.
- Launched the First Collection, a new collection of premium partners
and offers exclusively available to American Express Platinum(R) and
Centurion(R) Cardmembers through the Membership Rewards(R) program. The
First Collection offers a rich array of luxurious rewards in four
distinct categories: lifestyle, jewelry, watches and travel. It is
the first time that the Membership Rewards program offers targeted
rewards and partners specifically for premium Cardmembers.
- Enhanced the OPEN Savings(R) Program with the inclusion of two new
technology partners, Gateway and Symantec. OPEN Savings provides
small business owners with automatic savings virtually every time
they use an American Express Business Card at one of its merchant
partners.
- Acquired Harbor Payments, an Atlanta-based technology provider which
delivers industry-leading e-invoicing and e-payments capabilities,
helping companies eliminate paper invoice processing and making their
supply chains more efficient. This acquisition supports our launch of
a suite of innovative S2S(SM), or "source-to-settle" electronic
solutions, designed to help companies drive greater levels of cost
savings while improving control and compliance requirements. American
Express began marketing these solutions to corporations in the United
States in January 2007, with plans to expand on a global basis.
- Announced an agreement in conjunction with the United States Golf
Association (USGA), making American Express the USGA's first
corporate partner in the Association's 112-year history. American
Express will deliver benefits to Cardmembers across a broad range of
golf experiences, including providing an exclusive opportunity to
purchase otherwise sold-out tickets to the 2007 US Open(R), exclusive
access to some of the USGA's championships, and exclusive access to
play U.S. Open courses.
- Launched the Event Ticket Protection Plan, a new benefit available to
consumer and business Gold, Platinum(R) and Centurion(R) Cardmembers
at no extra cost to the Cardmember. American Express will reimburse
Cardmembers for the cost of tickets purchased with their eligible
Card to virtually any event in the U.S. if they are unable to use the
tickets due to various covered incidents, such as medical emergency
and the cancellation of the event by the venue.
-2-
AMERICAN EXPRESS COMPANY
FOURTH QUARTER 2006
HIGHLIGHTS
- Launched an "Intelligent Online Marketplace" for travel and related
business services, powered by Rearden Commerce. This web-based
marketplace brings together inventory from more than 135,000
suppliers to provide a one-stop-shop for consumers to find, purchase,
and manage both traditional travel (flights, hotel stays and car
rentals) and other services, such as airport parking, dining, ground
transportation, event tickets, package shipping and audio/web
conferencing. American Express has taken a minority equity stake in
the company and will name an executive to join the board.
- Announced a global, multi-year strategic partnership in which eFunds,
a company that delivers innovative payment processing and information
intelligence solutions, will provide processing services for the
American Express portfolio of prepaid cards. eFunds' prepaid card
processing expertise will provide American Express with increased
flexibility, greater capacity, and enhanced functionality to handle
the increasing sales and transaction volume within its prepaid card
business.
- Launched new lines of personalized Gift Cards, including the American
Express Gift Cards Especially for Kids, Especially for Teens and
Especially for Birthdays, as well as provided enhanced special offers
for American Express Gift Card and Gift Cheque recipients.
In our Global Network Services ("GNS") business we:
- Launched the first American Express-branded corporate card in China,
issued by Industrial Commercial Bank of China ("ICBC"). The ICBC
Corporate American Express Card, available in standard and gold, is a
dual currency card which helps corporations manage and streamline
business processes, identify opportunities for cost savings, and give
better support to employees during business travel.
- Signed an agreement with InterBanco, the leading privately-owned bank
in Paraguay, under which InterBanco will issue American Express
branded products in the local market and acquire new establishments
for the American Express merchant network. This partnership is the
first of its kind between American Express and a Paraguayan financial
institution.
- Announced an agreement with Garanti Bank to become the exclusive
issuer of the American Express Centurion line of cards in Turkey,
including the American Express Card(R), the American Express Gold(R)
Card, and for the first time in the market, a local currency Platinum(R)
Card. As part of the partnership agreement Garanti will exclusively
manage the merchant network as well as sign new merchants in Turkey to
accept American Express cards at their establishments.
- Launched a new airline co-brand card in Argentina with Banco RIO and
LAN Argentina. The RIO LANPASS American Express card enables
Cardmembers to earn free miles on the LANPASS airline loyalty program
and to fly to destinations around Argentina and all over the world.
- Launched two new innovative credit card products in Honduras and
Guatemala with Credomatic. The first, issued with La Cumbre Colonial,
a supermarket chain in Honduras targeted at affluent consumers,
offers cardmembers discounts on purchases at the chain's stores.
The second, issued with Corporacion Multi-Inversiones and La Pradera
malls in Guatemala offers rebates for various purchases at
Credomatic-affiliated establishments.
- Launched the first Banco Galicia platinum American Express card in
Argentina.
-3-
AMERICAN EXPRESS COMPANY
FOURTH QUARTER 2006 OVERVIEW
CONSOLIDATED
(Preliminary)
STATEMENTS OF INCOME
(GAAP BASIS)
(millions)
Quarters Ended Percentage
December 31, Inc/(Dec)
-------------------------- ---------------
2006 2005
---- ----
Net Revenues:
Discount revenue $3,458 $3,096 12%
Cardmember lending finance charge revenue, net of interest 990 703 41
Net card fees 479 518 (8)
Travel commissions and fees 450 435 3
Other commissions and fees 654 630 4
Securitization income, net 347 295 18
Other investment and interest income, net of interest 265 279 (5)
Other 565 424 33
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Total * 7,208 6,380 13
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Expenses:
Marketing, promotion, rewards and cardmember services 1,734 1,581 10
Human resources 1,336 1,177 14
Provisions for losses and benefits:
Charge card 277 290 (4)
Cardmember lending 484 415 17
Investment certificates and other 130 108 20
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Total 891 813 10
Professional services 807 714 13
Occupancy and equipment 405 390 4
Interest 338 249 36
Communications 116 115 1
Other 358 382 (6)
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Total 5,985 5,421 10
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Pretax income from continuing operations 1,223 959 28
Income tax provision 298 208 43
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Income from continuing operations 925 751 23
Loss from discontinued operations, net of tax (3) (6) (50)
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Net income $922 $745 24
====== ======
EPS-Basic
Income from continuing operations $0.77 $0.61 26
====== ======
Loss from discontinued operations $ - ($0.01) #
====== ======
Net Income $0.77 $0.60 28
====== ======
EPS-Diluted
Income from continuing operations $0.76 $0.60 27
====== ======
Loss from discontinued operations ($0.01) ($0.01) -
====== ======
Net Income $0.75 $0.59 27
====== ======
* On a managed basis, 4Q '06 total revenues of $7.4B include the U.S.
Card Services managed adjustments excluding provision, as referenced
on page 12, totaling $212MM.
Note: Amounts herein reflect certain reclassifications as noted in
the Company's Form 8-K, filed with the SEC, dated April 5, 2006.
# Denotes variance of more than 100%.
- 4Q `06 Income from continuing operations included:
-- A $68MM ($42MM after-tax) gain relating to the rebalancing of
our Travelers Cheque and Gift Card investment portfolio to
lengthen average maturities in order to better match the
expected timing of the redemption of outstanding Travelers Cheque
and Gift Card products, as previously referenced;
-- $52MM of tax benefits related principally to certain foreign losses
and the finalization of state tax returns; and
-- A substantial benefit within USCS reflecting the higher write-offs
last year related to increased bankruptcy filings resulting from the
October, 2005 bankruptcy legislation, partially offset by loan and
spending volume growth.
- 4Q '05 Income from continuing operations included a $60MM tax benefit
primarily related to the finalization of state tax returns.
- 4Q '06 and 4Q '05 Income from continuing operations also included
$64MM ($42MM after-tax) and $65MM ($42MM after-tax), respectively, of
reengineering costs related to restructuring efforts primarily in our
business travel, operations and technology activities.
-4-
AMERICAN EXPRESS COMPANY
FOURTH QUARTER 2006 OVERVIEW
CONSOLIDATED
o Net Income including discontinued operations increased 24% to $922MM.
- The 4Q '06 expense from discontinued operations was $3MM after-tax
versus $6MM of expense last year.
o SHARE REPURCHASES: During 4Q '06, 18MM shares were repurchased versus
16MM shares in 3Q '06 and 4MM shares in 4Q '05. We repurchased a higher
level of shares during 4Q `06 versus 4Q '05 after activity was reduced
last year due to the impact of the September 30, 2005 spin-off of
Ameriprise. Since the inception of repurchase programs in December 1994,
605MM shares have been acquired under cumulative Board authorizations to
repurchase up to 770MM shares, including purchases made under agreements
with third parties.
Millions of Shares
---------------------------------------------
- AVERAGE SHARES: 4Q `06 3Q `06 4Q `05
------ ------ ------
Basic 1,196 1,202 1,232
===== ===== =====
Diluted 1,224 1,227 1,258
===== ===== =====
- ACTUAL SHARE ACTIVITY:
Shares outstanding - beginning of period 1,204 1,216 1,239
Repurchase of common shares (18) (16) (4)
Employee benefit plans, compensation and other 13 4 6
----- ----- ------
Shares outstanding - end of period 1,199 1,204 1,241
===== ===== =====
o CAPITAL RETURNED TO SHAREHOLDERS: Including share repurchases and
dividends, during 4Q '06 and for the full year we returned 84% and 93%,
respectively, of capital generated to shareholders. On a cumulative
basis, since 1994, we have returned 69% of capital generated.
o CONSOLIDATED NET REVENUES: Consolidated net revenues increased 13%,
reflecting increases versus last year of 18% within USCS, 6% within
International Consumer & Global Corporate Services ("ICGCS") and 20%
within Global Network & Merchant Services ("GNMS"). Net revenues
increased due to higher discount revenues, increased cardmember lending
finance charge revenue, net of interest, higher other revenues, greater
securitization income, net, higher other commissions and fees and greater
travel commissions and fees, partially offset by lower net card fees and
other investment and interest income, net of interest. Translation of
foreign currency benefited the net revenue growth rate by 1%. A
reclassification of certain card acquisition-related costs, as described
within the net card fees discussion on page 7, suppressed consolidated
net revenue growth by approximately 1%.
o CONSOLIDATED EXPENSES: Consolidated expenses increased 10%, reflecting
increases versus last year of 13% within USCS, 8% in ICGCS, and 21%
within GNMS. Expense growth reflected higher human resources expense,
greater marketing, promotion, rewards and cardmember services costs,
higher professional services expenses, greater interest expense, higher
provisions for losses and benefits and increased occupancy and equipment
costs, partially offset by lower other operating expenses. Translation of
foreign currency contributed 1% to the expense growth rate.
o PRE-TAX MARGIN: Was 17.0% in 4Q '06 compared with 19.8% in 3Q '06 and 15.0%
in 4Q '05.
o EFFECTIVE TAX RATE: Was 24% in 4Q '06 versus 29% in 3Q '06 and 22% in 4Q
'05. The 4Q '05 tax rate reflects a $60MM benefit primarily related to
the finalization of state tax returns. The 4Q '06 rate reflects $52MM of
tax benefits principally related to certain foreign losses and the
finalization of state tax returns.
-5-
AMERICAN EXPRESS COMPANY
FOURTH QUARTER 2006 OVERVIEW
CONSOLIDATED
o DISCOUNT REVENUE: A 16% increase in billed business, partially offset by
the relatively faster GNS billed business growth and higher cash-back
rewards costs, yielded a 12% increase in discount revenue.
- The average discount rate* was 2.55% in 4Q `06 and 4Q '05 versus 2.57%
in 3Q `06.
--As indicated in prior quarters, selective repricing initiatives,
continued changes in the mix of business and volume-related pricing
discounts will likely result in some erosion of the average discount
rate over time.
Quarters Ended Percentage
December 31, Inc/(Dec)
-------------------------------- -------------
2006 2005
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Card billed business* (billions):
United States $109.7 $96.9 13%
Outside the United States 43.8 35.7 23
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Total $153.5 $132.6 16
====== ======
Total cards in force (millions):
United States 48.1 43.0 12
Outside the United States 29.9 28.0 7
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Total 78.0 71.0 10
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Basic cards in force (millions):
United States 37.1 32.8 13
Outside the United States 25.4 23.2 9
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Total 62.5 56.0 12
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Average basic cardmember spending**
United States $3,214 $3,094 4
Outside the United States $2,436 $2,092 16
Total $2,985 $2,778 7
* For additional information about billed business and discount rate
calculations, please refer to the Fourth Quarter/Full Year 2006 Earnings
Release, American Express Company Selected Statistical Information pages.
** Proprietary card activity only.
- WORLDWIDE BILLED BUSINESS: The 16% increase in worldwide billed
business reflected a 12% increase in USCS, a 14% increase in ICGCS,
and a 67% increase in GNS partner volume. Worldwide average spend per
proprietary basic card grew by 7% and basic cards in force grew by
12%.
-- U.S. billed business was up 13% reflecting growth of 11% within
our consumer card business, a 15% increase in small business
spending and an 11% improvement in Corporate Services volumes.
- Spending per proprietary basic card in force increased 4%.
- U.S. non-T&E-related volume categories (which represented
approximately 71% of 4Q `06 U.S. billed business) grew 14%,
while T&E volumes rose 10%.
- U.S. airline-related volume, which represented approximately
8% of total U.S. volumes during the quarter, increased 7%
due to a 5% increase in transactions and a 2% higher average
airline charge.
-- Adjusting for the impact of foreign exchange translation:
- Worldwide billed business and spending per proprietary basic card
in force increased 14% and 6%, respectively.
- Total billed business outside the U.S. rose 16%, reflecting
solid double-digit proprietary growth in Europe and Canada,
single digit growth in Asia Pacific and a decline in Latin
America. Excluding the impact of the 2Q '06 card operations sale
in Brazil and the 3Q '06 sales in Malaysia and Indonesia, Latin
America and Asia also exhibited double-digit proprietary
growth.
- Within our proprietary business, billed business outside the
U.S. reflected 6% growth in consumer and small business
spending, as well as 15% growth in Corporate Services
volumes. Excluding the impact of the sales, total proprietary
growth outside the U.S. was 13%.
- Spending per proprietary basic card in force outside the U.S.
rose 10%.
- Worldwide airline volumes, which represented approximately
11% of total volumes during the quarter, increased 8% on 7%
growth in transactions and a 1% increase in the average
airline charge.
- TOTAL CARDS IN FORCE: Rose 10% worldwide due to an increase of 9% in
USCS, a 2% decline in ICGCS and a 39% increase in GNS. Continued
robust card acquisitions within both the proprietary and GNS
activities, as well as continued solid average customer retention
levels, drove these results. The sale of our card activities in
Brazil in 2Q `06, and Malaysia and Indonesia in 3Q '06, resulted in
the transfer of 1.5MM cards from ICGCS to GNMS, suppressing ICGCS',
and increasing GNMS', respective growth rates. In addition, the
cancellation of 0.5MM low performing, retail-related co-brand cards
in France in 4Q '06 also suppressed the GNMS growth rate.
- 1.3MM and 200K net cards were added during the quarter in the U.S. and
the non-U.S. businesses, respectively.
-6-
AMERICAN EXPRESS COMPANY
FOURTH QUARTER 2006 OVERVIEW
CONSOLIDATED
o CARDMEMBER LENDING FINANCE CHARGE REVENUE, NET OF INTEREST: Increased 41%
on 30% growth in average worldwide lending balances on an owned basis and
a higher portfolio yield.
- Annualized net finance charge revenue as a percentage of average
loans in the worldwide owned portfolio was 9.8% in 4Q `06 versus 9.6%
in 3Q '06 and 9.0% in 4Q `05. The increase versus last year reflects
a lower proportion of the U.S. portfolio on promotional rates and
increased finance charge rates, which were partially offset by rising
funding costs.
- Cardmember lending finance charge revenue is net of related interest of
$359MM and $263MM in 4Q '06 and 4Q '05, respectively.
o NET CARD FEES: Decreased 8% as the benefit of card growth was offset by
the reclassification of certain card acquisition-related costs, beginning
prospectively July 1, 2006, from other operating expense to a reduction
in net card fees. The reclassification had no effect on net income and is
not included in the average fee per card calculation. The average annual
fee per proprietary card in force was $35 in 4Q '06 and 4Q '05 versus $34
in 3Q '06.
o TRAVEL COMMISSIONS AND FEES: Increased 3% reflecting a 6% increase in
travel sales, a moderately reduced level of corporate transactions and
lower average revenue per transaction, due in part to the ongoing
transition to online booking.
o OTHER COMMISSIONS AND FEES: Increased 4% on higher card-related assessment
and service fees as well as higher conversion revenues.
o SECURITIZATION INCOME, NET: Increased 18% as a higher portfolio yield and
a decrease in portfolio write-offs were partially offset by greater
interest expense, due to a higher coupon rate paid to certificate
holders, and a lower average securitization balance. Securitization
income, net represents the non-credit provision components of the gains
from securitization activities within the USCS segment, impairment
charges, if any, of the related 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.
- - Components of Securitization Income, Net:
Quarters Ended Percentage
December 31, Inc/(Dec)
------------------------ -------------
2006 2005
---- ----
(millions)
Excess spread* $246 $183 34%
Servicing fees 101 105 (4)
Gains on sales from securitizations** - 7 #
---- ----
Total securitization income $347 $295 18
==== ====
* Excess spread 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.
** 2005 excludes $13MM of impact from cardmember loan sales reflected
in credit provision.
# Denotes variance of more than 100%.
- During 4Q '06 there were no securitization issuances or maturities,
therefore, net securitization gains, including the credit provision
impacts from new issuances and maturities, did not have an impact on
pre-tax income. The average balance of Cardmember lending
securitizations was $20.2B in 4Q '06, compared with $20.9B in 4Q '05.
o OTHER INVESTMENT AND INTEREST INCOME, NET OF INTEREST: Decreased 5%
reflecting lower portfolio yields.
- Other investment and interest income is net of related interest of $124MM
and $90MM in 4Q '06 and 4Q '05, respectively.
o OTHER REVENUES: Increased 33% primarily due to the aforementioned gain on
the Travelers Cheque and Gift Card investment portfolio and higher
insurance-related revenues.
o MARKETING, PROMOTION, REWARDS AND CARDMEMBER SERVICES EXPENSES: Increased
10%, reflecting the higher marketing and promotion expenses and greater
rewards costs previously discussed.
o HUMAN RESOURCES EXPENSE: Increased 14% due to merit increases and larger
incentive, benefit and severance-related costs, partially offset by a
relatively flat level of employees versus 4Q '05.
-7-
AMERICAN EXPRESS COMPANY
FOURTH QUARTER 2006 OVERVIEW
CONSOLIDATED
o PROVISIONS FOR LOSSES AND BENEFITS: Increased 10% as the lending and
other provision growth of 17% and 20%, respectively, were offset by a 4%
decline in the charge provision. The increase in the lending provision
was driven by increased loan volumes globally, partially offset by the
favorable impact of lower bankruptcy-related charge offs and strong
credit quality in the U.S. The investment certificate and other provision
increased due to higher merchant-related reserves and higher interest
rates on investment certificate balances. The decrease in the charge
provision reflects a lower loss rate and improved results from collection
activities.
Overall credit quality continued to perform well. Reserve coverage
ratios remained strong.
- WORLDWIDE CHARGE CARD:*
-- The loss ratio was unchanged versus last quarter, but declined
from last year. Past due rates rose versus last year, but
remained flat versus last quarter.
12/06 9/06 12/05
------ ----- -----
Net loss ratio as a % of charge volume 0.26% 0.26% 0.29%
90 days past due as a % of receivables 1.8% 1.8% 1.6%
12/06 9/06 12/05
------ ----- -----
Total Receivables (billions) $37.4 $35.0 $34.2
Reserves (millions) $981 $947 $942
% of receivables 2.6% 2.7% 2.8%
% of 90 day past due accounts 147% 149% 177%
- WORLDWIDE LENDING:**
-- The write-off rate declined versus last year, but increased
versus last quarter. Past due levels rose versus last year, but
decreased versus last quarter.
12/06 9/06 12/05
------ ----- -----
Net write-off rate 4.0% 3.8% 4.2%
30 days past due as a % of loans 2.7% 2.8% 2.5%
12/06 9/06 12/05
------ ----- -----
Total Loans (billions) $43.3 $38.3 $33.1
Reserves (millions) 1,171 $1,126 $996
% of total loans 2.7% 2.9% 3.0%
% of 30 days past due accounts 98% 106% 122%
* There are no off-balance sheet Charge Card securitizations.
Therefore, all credit quality statistics for the Charge Card
portfolio are on an "Owned Basis".
** All lending statistics are presented here on a GAAP or "Owned
Basis". "Managed Basis" credit quality statistics are available
in the Fourth Quarter 2006 Earnings Release on the Consolidated
Selected Statistical Information pages. Credit trends are
generally consistent under both reporting methods.
o PROFESSIONAL SERVICES EXPENSE: Rose 13% reflecting higher technology service
fees, greater business and service-related volumes.
o OCCUPANCY AND EQUIPMENT EXPENSE: Rose 4% due to costs associated with higher
business and service-related volumes.
o INTEREST EXPENSE: Rose 36% due to a higher effective cost of funds and
greater receivable balances.
o COMMUNICATIONS EXPENSE: Increased 1%.
o OTHER EXPENSE: Decreased 6% due to the reclassification of certain card
acquisition-related costs, as previously described in the net card fees
discussion, partially offset by increased volume and technology related costs.
-8-
AMERICAN EXPRESS COMPANY
FOURTH QUARTER 2006 OVERVIEW
CONSOLIDATED
SUPPLEMENTAL INFORMATION - TANGIBLE COMMON EQUITY AND TOTAL ADJUSTED ASSETS
During the third quarter of 2006, the Company issued $750MM of 6.80%
Subordinated Debentures due 2036 ("Subordinated Debentures"), which are
automatically extendable until 2066 unless certain events occur prior to that
date. In connection with the Subordinated Debentures, the Company has
undertaken to disclose on a quarterly basis the amount of its "tangible common
equity" and "total adjusted assets". The Company's consolidated tangible
common equity amount as of the end of any fiscal quarter means the total
shareholders' equity, excluding preferred stock, of the Company as reflected
on its consolidated balance sheet prepared in accordance with GAAP as of such
fiscal quarter end minus (i) intangible assets and goodwill and (ii) deferred
acquisition costs, as determined in accordance with GAAP and reflected in such
consolidated balance sheet. The Company calculates total adjusted assets as of
the end of any fiscal quarter as the sum of (i) total consolidated assets as
reflected on the Company's balance sheet minus (ii) non-securitized Cardmember
lending receivables (without deduction for reserves), which are set forth on
the Company's balance sheet, plus (iii) managed (i.e., securitized and
non-securitized) worldwide Cardmember lending receivables as reported by the
Company for such fiscal quarter. As of December 31, 2006, the Company's
tangible common equity was $9B and its total adjusted assets were $148B. As of
December 31, 2006, the consolidated assets, as reflected on the Company's
balance sheet, were $128B.
CORPORATE & OTHER
Net expense was $42MM in 4Q '06 compared with net expense of $52MM in 3Q '06
and $62MM in 4Q '05. The 4Q'06 expense includes $6MM ($4MM after-tax) of
reengineering costs. The 4Q '05 expense reflects a $14MM tax benefit, $11MM
($7MM after-tax) of expense due to the consolidation of New York facilities,
$10MM ($7MM after-tax) of reengineering costs related primarily to initiatives
within our technology function, and $8MM after-tax of spin-off related
expenses.
-9-
AMERICAN EXPRESS COMPANY
FOURTH QUARTER 2006 OVERVIEW
U.S. CARD SERVICES
CONDENSED STATEMENTS OF INCOME
(GAAP BASIS)
(Preliminary)
Quarters Ended Percentage
December 31, Inc/(Dec)
(millions) -------------------------- -----------
2006 2005
---- ----
Net Revenues:
Discount revenue, net card fees and other $2,679 $2,401 12%
Cardmember Lending:
Finance charge revenue 1,018 685 49
Interest expense 288 200 44
------ ------
Net finance charge revenue 730 485 51
Securitization income, net 347 295 18
------ ------
Total 3,756 3,181 18
----- ------
Expenses:
Marketing, promotion, rewards and cardmember services 1,242 1,097 13
Provision for losses 526 509 3
Human resources and other operating expenses 1,218 1,037 17
------ ------
Total 2,986 2,643 13
------ ------
Pretax segment income 770 538 43
Income tax provision 235 124 90
------ ------
Segment income $535 $414 29
====== ======
Quarters Ended Percentage
STATISTICAL INFORMATION December 31, Inc/(Dec)
-------------------------- -----------
2006 2005
---- ----
Card billed business (billions) $90.8 $80.8 12%
Total cards in force (millions) 40.7 37.5 9
Basic cards in force (millions) 30.1 27.7 9
Average basic cardmember spending* $3,044 $2,945 3
Segment capital (billions) $5.0 $5.1 (2)
Return on segment capital** 46.2% 38.9% -
* Proprietary cards only.
** 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.
- BILLED BUSINESS: The 12% increase in USCS billed business reflected a
3% increase in spending per proprietary basic card and 9% growth in
basic cards in force.
-- Within the U.S. consumer business, billed business grew 11%; small
business volumes rose 15%.
- TOTAL CARDS IN FORCE: Increased by 3.2MM, or 9%, versus last year on
continued strong card acquisition activity and retention levels.
P&L DISCUSSION:
o NET INCOME: Increased 29% as net revenues increased 18% and expenses
increased 13%. The 4Q `06 results include the previously mentioned $68MM
($42MM after-tax) gain related to the Travelers Cheque and Gift Card
investment portfolio in addition to $26MM ($17MM after-tax) of
reengineering costs.
- PRE-TAX MARGIN: Was 20.5% in 4Q '06 versus 23.2% in 3Q '06 and
16.9% in 4Q `05.
- EFFECTIVE TAX RATE: Was 31% in 4Q '06 compared to 29% in 3Q '06 and
23% in 4Q '05. The 4Q '05 tax rate reflects a $29MM tax benefit
primarily related to the finalization of state tax returns.
-10-
AMERICAN EXPRESS COMPANY
FOURTH QUARTER 2006 OVERVIEW
U.S. CARD SERVICES
o DISCOUNT REVENUE, NET CARD FEES AND OTHER REVENUES: Increased 12%,
largely due to higher billed business volumes and the Travelers Cheque
and Gift Card investment portfolio gain.
o NET FINANCE CHARGE REVENUE: Increased 51% on 33% growth in average owned
lending balances and a higher net portfolio yield.
- Annualized net finance charge revenue as a percentage of average loans
was 9.4% in 4Q '06 versus 9.2% in 3Q '06 and 8.4% in 4Q `05.
o SECURITIZATION INCOME, NET: Increased 18% as a higher portfolio yield and
a decrease in portfolio write-offs were partially offset by greater
interest expense, due to a higher coupon rate paid to certificate
holders, and a lower average securitization balance.
o MARKETING, PROMOTION, REWARDS AND CARDMEMBER SERVICES EXPENSES: Rose 13%
due to increased marketing and promotion costs and higher volume-related
rewards costs.
o PROVISION FOR LOSSES: Increased 3% as the impact of strong volume and
loan growth were partially offset by a comparatively lower level of
bankruptcy-related charge offs versus last year, improved collections and
continued strong credit quality.
- - CHARGE CARD: *
-- The loss ratio decreased from both last year and last quarter.
The past due rate increased versus last year, but decreased
versus last quarter.
12/06 9/06 12/05
------ ------ ------
Total Receivables (billions) $20.6 $18.2 $19.2
Net loss ratio as a % of charge volume 0.32% 0.33% 0.38%
90 days past due as a % of total 2.1% 2.3% 1.8%
- - CARDMEMBER LENDING: **
-- The write-off rate declined versus last year, but rose versus
last quarter, reflecting the effect of last year's bankruptcy
legislation. The past due rate increased versus last year, but
remained flat versus last quarter.
12/06 9/06 12/05
------ ------ ------
Total Loans (billions) $33.6 $29.3 $24.8
Net write-off rate 3.5% 3.1% 4.1%
30 days past due as a % of loans 2.7% 2.7% 2.3%
* There are no off-balance sheet Charge Card securitizations.
Therefore, all credit quality statistics for the Charge Card
portfolio are on an "Owned Basis".
** Owned basis. See page 13 for "Managed Basis" Cardmember
lending information.
o HUMAN RESOURCES AND OTHER OPERATING EXPENSES: Increased 17% due to higher
interest expense, increased human resource expense, greater professional
services expenses and generally higher volume-related and
business-building costs.
-11-
AMERICAN EXPRESS COMPANY
FOURTH QUARTER 2006 OVERVIEW
U.S. CARD SERVICES
MANAGED BASIS
For U.S. Card Services, the managed basis presentation reflects an increase to
interest income recorded to enable management to evaluate tax exempt
investments on a basis consistent with taxable investment securities. On a
GAAP basis, interest income associated with tax exempt investments is recorded
based on amounts earned. Accordingly, information presented on a managed basis
assumes that tax exempt securities earned income at rates as if the securities
produced taxable income with a corresponding increase in the provision for
income taxes.
The managed basis presentation also assumes that there have been no off
balance sheet securitization transactions, i.e., all securitized cardmember
loans and related income effects are reflected as if they were in the
Company's balance sheets and income statements, respectively. For the managed
basis presentation, revenue and expenses related to securitized cardmember
loans are reflected in net card fees and other, net finance charge revenue,
and credit provision. On a managed basis, there is no securitization income,
net, as the managed basis presentation assumes no securitization transactions
have occurred.
The Company presents U.S. Card Services information on a managed basis because
that is the way the Company's management views and manages the business.
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. Management also believes
that use of a managed basis presentation presents a more accurate picture of
the key dynamics of the cardmember lending business. Irrespective of the on
and off balance sheet funding mix, it is important for management and
investors to see metrics for the entire cardmember lending portfolio because
they are more representative of the economics of the aggregate cardmember
relationships and ongoing business performance and trends over time. It is
also important for investors to see the overall growth of cardmember loans and
related revenue in order to evaluate market share. These metrics are
significant in evaluating the Company's performance and can only be properly
assessed when all non-securitized and securitized cardmember loans are viewed
together on a managed basis. The Company does not currently securitize
international loans.
On a GAAP basis, revenue and expenses from securitized cardmember loans are
reflected in the Company's income statements in securitization income, net,
fees and commissions, and credit provision for cardmember lending. At the time
of a securitization transaction, the securitized cardmember loans are removed
from the Company's balance sheet, and the resulting gain on sale is reflected
in securitization income, net, as well as an impact to credit provision
(credit reserves are no longer recorded for the cardmember loans once sold).
Over the life of a securitization transaction, the Company recognizes
servicing fees and other net revenues (referred to as "excess spread") related
to the interests sold to investors (i.e. the investors' interests). These
amounts are reflected in securitization income, net and fees and commissions.
The Company also recognizes net finance charge revenue over the life of the
securitization transaction related to the interest it retains (i.e. the
seller's interest). At the maturity of a securitization transaction,
cardmember loans on the balance sheet increase, and the impact of the
incremental required loss reserves is recorded in credit provision.
As presented, in aggregate over the life of a securitization transaction, the
pre-tax income impact to the Company is the same whether or not the Company
had securitized cardmember loans or funded these loans through other financing
activities (assuming the same financing costs). The income statement
classifications, however, of specific items will differ.
The following information reconciles the GAAP basis presentation for certain
USCS income statement line items to the managed basis presentation, where
different:
Quarters Ended Percentage
December 31, Inc/(Dec)
---------------------------- -----------------
(millions) 2006 2005
---- ----
o DISCOUNT REVENUE, NET CARD FEES AND OTHER:
Reported for the period (GAAP) $ 2,679 $2,401 12%
Securitization adjustments 56 53
Tax adjustments 53 56
-------- --------
Managed discount revenue, net card fees
and other $2,788 $2,510 11
======== ========
o NET FINANCE CHARGE REVENUE:
Reported for the period (GAAP) $ 730 $485 51
Securitization adjustments 450 518
-------- --------
Managed net finance charge revenue $1,180 $1,003 18
======== ========
o SECURITIZATION INCOME, NET:
Reported for the period (GAAP) $ 347 $295 18
Securitization adjustments (347) (295)
-------- --------
Managed securitization income, net $ - $ - -
======== ========
o PROVISION FOR LOSSES:
Reported for the period (GAAP) $ 526 $ 509 3
Securitization adjustments 153 287
-------- --------
Managed provision for losses $ 679 796 (15)
======== ========
-12-
AMERICAN EXPRESS COMPANY
FOURTH QUARTER 2006 OVERVIEW
U.S. CARD SERVICES
MANAGED P&L DISCUSSION
o DISCOUNT REVENUE, NET CARD FEES AND OTHER REVENUES: Increased 11%,
largely due to higher billed business volumes and the Travelers Cheque
and Gift Card investment portfolio gain.
o NET FINANCE CHARGE REVENUE: Increased 18% on 16% growth in average managed
lending balances and a higher net portfolio yield.
- Annualized net finance charge revenue as a percentage of average loans
was 9.2% in 4Q `06 versus 9.3% in 3Q '06 and 9.1% in 4Q `05.
o PROVISION FOR LOSSES: Declined 15% as the impact of strong volume and
loan growth were more than offset by the comparatively lower level of
bankruptcy-related charge offs versus last year, as well as improved
collections and continued strong credit quality.
- CARDMEMBER LENDING: *
-- The write-off rate declined versus last year, but rose versus
last quarter, reflecting the effect of last year's bankruptcy
legislation. The past due rate increased versus last year, but
remained flat versus last quarter.
12/06 9/06 12/05
---------- ------------ -----------
Total Loans (billions) $53.8 $49.5 $46.0
Net write-off rate 3.3% 3.0% 4.6%
30 days past due as a % of loans 2.6% 2.6% 2.3%
*Managed basis. There are no off-balance sheet Charge Card securitizations.
Therefore, all credit quality statistics for the Charge Card portfolio are
on an "Owned Basis" as presented on page 11.
-13-
AMERICAN EXPRESS COMPANY
FOURTH QUARTER 2006 OVERVIEW
INTERNATIONAL CARD & GLOBAL COMMERCIAL SERVICES
CONDENSED STATEMENTS OF INCOME
(GAAP BASIS)
(Preliminary)
Quarters Ended Percentage
December 31, Inc/(Dec)
---------------------------------- -----------------
(millions) 2006 2005
---- ----
Net Revenues:
Discount revenue, net card fees and other $2,220 $2,115 5%
Cardmember Lending:
Finance charge revenue 329 278 18
Interest expense 116 94 23
------ ------
Net finance charge revenue 213 184 16
------ ------
Total 2,433 2,299 6
------ ------
Expenses:
Marketing, promotion, rewards and cardmember services 346 321 8
Provision for losses and benefits 316 286 10
Human resources and other operating expenses 1,509 1,402 8
------ ------
Total 2,171 2,009 8
------ ------
Pretax segment income 262 290 (10)
Income tax provision 31 57 (46)
------ ------
Segment income $231 $233 ( 1)
====== ======
STATISTICAL INFORMATION Quarters Ended Percentage
December 31, Inc/(Dec)
---------------------------------- -----------------
2006 2005
---- ----
Card billed business (billions) $51.2 $45.1 14%
Total cards in force (millions) 22.3 22.7 (2)
Basic cards in force (millions) 17.9 18.0 (1)
Average basic cardmember spending* $2,874 $2,534 13
Segment capital (billions) $4.1 $4.1 -
Return on segment capital** 20.9% 23.2% -
* Proprietary cards only.
** 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.
- BILLED BUSINESS: The 14% increase in billed business reflects a 13%
increase in spending per proprietary basic card and a 1% decrease in
basic cards in force.
-- Adjusting for the impacts of foreign exchange translation and the prior
quarters' sales of our operations in Brazil, Malaysia and Indonesia,
billed business and spending per proprietary basic card in force
increased 13% and 7%, respectively, and all of AXP's major
geographic regions experienced double digit growth.
- International consumer and small business spending rose 11%; global
corporate spending rose 14%.
- TOTAL CARDS IN FORCE: Decreased 2% versus last year. Excluding the
impact of 1.3MM proprietary cards in Brazil and 0.2MM proprietary
cards in Indonesia and Malaysia transferred to GNMS in 2Q '06 and 3Q
'06, respectively, cards in force rose 5%.
P&L DISCUSSION
o NET INCOME: Decreased 1% versus last year as net revenues rose 6% and
expenses increased by 8%.
- 4Q '06 included $28MM ($18MM after-tax) of reengineering costs,
related principally to ongoing restructuring activities in the
Corporate Travel business and international operations.
- 4Q '05 included $54MM ($35MM after-tax) of reengineering costs, principally
business travel-related.
- PRE-TAX MARGIN: Was 10.8% in 4Q '06 versus 12.3% in 3Q '06 and 12.6% in
4Q `05.
- EFFECTIVE TAX RATE: Was 12% in 4Q '06 versus 23% in 3Q '06 and 20% in
4Q '05. The 4Q '06 tax rate reflects benefits principally related to
certain foreign losses.
-14-
AMERICAN EXPRESS COMPANY
FOURTH QUARTER 2006 OVERVIEW
INTERNATIONAL CARD & GLOBAL COMMERCIAL SERVICES
o DISCOUNT REVENUE, NET CARD FEES AND OTHER REVENUES: The increase of 5%
versus 4Q '05 was driven primarily by the higher level of card spending,
which was partially offset by decreased card-related fees due to the
reclassification of certain card-related acquisition costs effective July
1, 2006, and a decline in other commissions and assessments. Growth was
also suppressed by slow growth in travel commissions and fees, increased
incentives for corporate clients associated with growth in corporate
volumes, and the impact of the sales of card-related operations in
Brazil, Malaysia and Indonesia.
o NET FINANCE CHARGE REVENUE: Increased 16% as 19% growth in average lending
balances was partially offset by a lower net yield.
- Annualized net finance charge revenue as a percent of average loans was
9.1% in 4Q '06 versus 8.9% in 3Q '06 and 9.4% in 4Q '05.
o MARKETING, PROMOTION, REWARDS AND CARDMEMBER SERVICES EXPENSES: Increased
8%, reflecting greater rewards costs, partially offset by a moderate
reduction in marketing and promotion costs.
o PROVISION FOR LOSSES AND BENEFITS: Increased 10%, principally due to
spending volume, as well as loan growth and higher investment certificate
costs.
- CHARGE CARD: *
-- The loss ratio and past due amounts rose versus last year and last
quarter.
12/06 9/06 12/05
------------ ----------- -----------
Total Receivables (billions) $16.3 $16.4 $14.5
Net loss ratio as a % of charge volume 0.19% 0.18% 0.18%
90 days past due as a % of total 1.4% 1.3% 1.3%
- - CARDMEMBER LENDING:*
- -- Past due and write-off rates rose versus last year, but decreased versus
last quarter.
12/06 9/06 12/05
------------ ----------- -----------
Cardmember Loans (billions) $9.7 $9.0 $8.3
Net write-off rate 5.7% 5.9% 4.4%
30 days past due as a % of loans 2.9% 3.1% 2.8%
*There are no off-balance sheet Charge Card and currently
no off-balance sheet international lending securitizations.
Therefore, all credit quality statistics for the Charge Card and
international lending portfolio are on an "Owned Basis".
o HUMAN RESOURCES AND OTHER OPERATING EXPENSES: Increased 8% as higher
interest, human resources, and professional services expenses were
partially offset by the previously discussed reclassification to revenues
of certain card acquisition-related costs and the impact of the sales of
card operations in Brazil, Malaysia and Indonesia.
-15-
AMERICAN EXPRESS COMPANY
FOURTH QUARTER 2006 OVERVIEW
GLOBAL NETWORK & MERCHANT SERVICES
CONDENSED STATEMENTS OF INCOME
(GAAP BASIS)
(Preliminary)
Quarters Ended Percentage
December 31, Inc/(Dec)
---------------------------- --------------
(millions) 2006 2005
---- ----
Net Revenues:
Discount revenue, fees and other $869 $725 20%
Expenses:
Marketing and promotion 125 141 (11)
Provision for losses 46 13 #
Human resources and other operating expenses 401 319 26
----- -----
Total 572 473 21
----- -----
Pretax segment income 297 252 18
Income tax provision 96 86 12
----- -----
Segment income $201 $166 21
===== =====
# Denotes variance of more than 100%.
STATISTICAL INFORMATION Quarters Ended Percentage
December 31, Inc/(Dec)
---------------------------- --------------
2006 2005
---- ----
Global card billed business*(billions) $153.5 $132.6 16%
Segment capital (millions) $1,272 $1,316 (3)
Return on segment capital** 60.3% 49.2% -
Global Network Services:***
Card billed business (billions) $11.5 $6.9 67
Total cards in force (millions) 15.0 10.8 39
* Includes activities related to proprietary cards (including cash advances),
cards issued under network partnerships, and certain insurance fees charged
on proprietary cards.
** 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.
*** 4Q'06 Card billed business and total cards in force include $1.5B of
billed business associated with the transfer of 1.3MM proprietary cards in
Brazil in 2Q '06 and 0.2MM proprietary cards in Malaysia and Indonesia
during 3Q '06 from ICGCS to GNS. Excluding these transfers, billed
business grew 44% and cards in force grew 25%. In addition, GNS cards in
force growth was suppressed by the cancellation during the quarter of
0.5MM low performing retail-related co-brand cards in France.
P&L DISCUSSION
o NET INCOME: Increased 21% on 20% revenue growth and a 21% increase in
expenses. 4Q'06 included $4MM ($3MM after-tax) of reengineering costs,
compared to $1MM ($1MM after-tax) in 4Q'05.
- - PRE-TAX MARGIN: Was 34.2% in 4Q '06 versus 39.3% in 3Q '06 and 34.8% in
4Q `05.
- - EFFECTIVE TAX RATE: Was 32% in 4Q '06 and 3Q '06 versus 34% in 4Q '05.
o DISCOUNT REVENUE, FEES AND OTHER REVENUE: Increased 20%, reflecting
growth in merchant-related fees, primarily from the 16% increase in
global card billed business, as well as higher network partner-related
revenues.
o MARKETING AND PROMOTION EXPENSES: Decreased 11%, reflecting a reduction
in brand-related advertising costs versus last year when the "My Life, My
Card(SM)" campaign was in a particularly active phase.
o PROVISION FOR LOSSES: Increased due to higher merchant-related provisions.
o HUMAN RESOURCES AND OTHER OPERATING EXPENSES: Increased 26% reflecting higher
business volumes, and greater salary, incentive 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.
-16-
AMERICAN EXPRESS COMPANY
FULL YEAR 2006 OVERVIEW
CONSOLIDATED
(Preliminary)
STATEMENTS OF INCOME
(GAAP BASIS)
(millions)
Years Ended Percentage
December 31, Inc/(Dec)
-------------------------- ---------------
2006 2005
---- ----
Net Revenues:
Discount revenue $12,978 $11,489 13%
Cardmember lending finance charge revenue, net of interest 3,457 2,580 34
Net card fees 1,994 2,033 (2)
Travel commissions and fees 1,778 1,780 -
Other commissions and fees 2,555 2,375 8
Securitization income, net 1,489 1,260 18
Other investment and interest income, net of interest 1,078 1,055 2
Other 1,807 1,496 21
------- -------
Total 27,136 24,068 13
------- -------
Expenses:
Marketing, promotion, rewards and cardmember services 6,516 5,841 12
Human resources 5,065 4,829 5
Provisions for losses and benefits:
Charge card 935 1,038 (10)
Cardmember lending 1,623 1,349 20
Investment certificates and other 529 386 37
------- -------
Total 3,087 2,773 11
Professional services 2,710 2,308 17
Occupancy and equipment 1,491 1,428 4
Interest 1,236 920 34
Communications 449 457 (2)
Other 1,254 1,264 (1)
------- -------
Total 21,808 19,820 10
------- -------
Pretax income from continuing operations 5,328 4,248 25
Income tax provision 1,599 1,027 56
------- -------
Income from continuing operations 3,729 3,221 16
Income (loss) from discontinued operations, net of tax (22) 513 #
------- -------
Net income $3,707 $3,734 (1)
======= =======
EPS-Basic
Income from continuing operations $3.08 $2.61 18
======= =======
Income (loss) from discontinued operations ($0.02) $0.42 #
======= =======
Net Income $3.06 $3.03 1
======= =======
EPS-Diluted
Income from continuing operations $3.01 $2.56 18
======= =======
Income (loss) from discontinued operations ($0.02) $0.41 #
======= =======
Net Income $2.99 $2.97 1
======= =======
# Denotes variance of more than 100%.
Note: Amounts herein reflect certain reclassifications as noted in
the Company's Form 8-K, filed with the SEC, dated April 5, 2006.
- 2006 Income from continuing operations included:
-- $177MM ($155MM after-tax) of gains related to the completion of
the sale of our card and related operations in Brazil in 2Q'06
and in Malaysia and Indonesia in 3Q'06;
-- $88MM ($40MM after-tax) of gains in 1Q'06 related to the completion
of the sale of our stake in Egyptian American Bank ("EAB");
-- $68MM ($42MM after-tax) of gains in 4Q `06 related to the rebalancing
of our Travelers Cheque and Gift Card investment portfolio to
better align its maturity profile with its business liquidity needs;
-- $52MM of tax benefits in 4Q '06 related principally to certain foreign
losses and the finalization of state tax returns;
-- $174MM ($113MM after-tax) of total charges in 1Q'06 and 2Q'06 related
to a higher redemption rate estimate within the U.S. and non-U.S.
Membership Rewards reserves;
-- A $72MM ($47MM after-tax) net reduction in 1Q'06 finance charge
revenues and securitization income related to higher than
anticipated cardmember completion of consumer debt repayment
programs and certain associated payment waivers; and
-- Higher provisions for credit losses in Taiwan due primarily to
the impact of industry-wide credit issues within the market,
which were offset by the favorable impact from lower early credit
write-offs related to the October, 2005 bankruptcy legislation in the
U.S., and lower costs related to Hurricane Katrina.
-17-
AMERICAN EXPRESS COMPANY
FULL YEAR 2006 OVERVIEW
CONSOLIDATED
- 2005 Income from continuing operations included:
-- $239MM of tax benefits including the $60MM benefit related primarily to
the previously discussed finalization of state tax returns in 4Q `05;
and
-- $192MM of benefits related to the resolution of IRS audits of
previous years' tax returns, among other items;
-- A $113MM ($73MM after-tax) benefit from the recovery of 9/11-related
insurance claims in 2Q'05; and
-- A $49MM ($37MM after-tax) provision in 3Q '05 to reflect the estimated
costs related to Hurrican Katrina.
- 2006 and 2005 Income from continuing operations also included $154MM
($100MM after-tax) and $286MM ($186MM after-tax), respectively, of
reengineering costs related to restructuring efforts primarily in our
business travel, operations, finance and technology areas.
o Net Income including discontinued operations decreased 1% to $3,707MM.
- The 2006 loss from discontinued operations was $22MM after-tax versus
the $513MM after-tax of income in 2005, which was primarily related
to Ameriprise Financial, Inc. earnings prior to the spin-off.
o SHARE REPURCHASES: During 2006, 75MM shares were repurchased versus 34MM
shares in 2005. We repurchased a higher level of shares during 2006
versus 2005 after activity was reduced due to the impact of the September
30, 2005 spin-off of Ameriprise.
Millions of Shares
--------------------
- AVERAGE SHARES: 2006 2005
---- ----
Basic 1,212 1,233
===== =====
Diluted 1,238 1,258
===== =====
- ACTUAL SHARE ACTIVITY:
Shares outstanding - beginning of period 1,241 1,249
Repurchase of common shares (75) (34)
Employee benefit plans, compensation and other 33 26
----- -----
Shares outstanding - end of period 1,199 1,241
===== =====
o CONSOLIDATED NET REVENUES: Consolidated net revenues increased 13%,
reflecting increases versus last year of 17% within USCS, 6% within ICGCS
and 15% within GNMS. Net revenues increased due to higher discount
revenues, increased cardmember lending finance charge revenue, net of
interest, greater other revenues, increased securitization income, net,
higher other commissions and fees and higher other investment and
interest income, net of interest, partially offset by lower net card fees
and lower travel commissions and fees. Translation of foreign currency
had a minimal impact on the net revenue growth rate. A reclassification
of certain card acquisition-related costs, as described within the net
card fees discussion on page 7, had a minimal impact on consolidated net
revenue growth.
o CONSOLIDATED EXPENSES: Consolidated expenses increased 10%, reflecting
increases versus last year of 13% within USCS, 6% in ICGCS, and 6% within
GNMS. Expense growth reflected greater marketing, promotion, rewards and
cardmember services costs, higher professional services expenses,
increased interest expense, higher provisions for losses and benefits,
greater human resources expenses and increased occupancy and equipment
costs, partially offset by lower other expenses and lower communication
costs. Translation of foreign currency had a minimal impact on the
expense growth rate.
o PRE-TAX MARGIN: Was 19.6% in 2006 compared with 17.6% in 2005.
o EFFECTIVE TAX RATE: Was 30% in 2006 versus 24% in 2005. The lower tax
rate in 2005 reflects benefits of $192MM from the resolution of IRS
audits of previous years' tax return items and the $60MM benefit in 4Q
'05 primarily related to the finalization of state tax returns, among other
items. 2006 included a number of items previously discussed during the year
which collectively did not have a significant impact on the effective
tax rate.
-18-
AMERICAN EXPRESS COMPANY
FULL YEAR 2006 OVERVIEW
CONSOLIDATED
o DISCOUNT REVENUE: A 16% increase in billed business, partially offset by
a lower average discount rate, relatively faster GNS billed business
growth and higher cash-back rewards costs, yielded a 13% increase in
discount revenue.
- The average discount rate* was 2.57% in 2006 versus 2.58% in 2005.
--As indicated in prior quarters, 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.
Years Ended Percentage
December 31, Inc/(Dec)
----------------------------- -------------
2006 2005
---- ----
Card billed business* (billions):
United States $406.8 $354.6 15%
Outside the United States 154.7 129.8 19
------- -------
Total $561.5 $484.4 16
======= =======
Average basic cardmember spending**
United States $12,307 $11,660 6
Outside the United States $8,691 $7,817 11
Total $11,201 $10,445 7
* For additional information about billed business and discount
rate calculations, please refer to the Fourth Quarter/Full Year
2006 Earnings Release, American Express Company Selected
Statistical Information pages.
** Proprietary card activity only.
- WORLDWIDE BILLED BUSINESS: The 16% increase in worldwide billed
business reflected a 14% increase in USCS, a 15% increase in ICGCS,
and a 48% increase in GNS partner volume. Worldwide average spend per
proprietary basic card grew by 7% and basic cards in force grew by 12%.
-- U.S. billed business was up 15% reflecting growth of 13% within
our consumer card business, a 16% increase in small business
spending and a 14% improvement in Corporate Services volumes.
- Spending per proprietary basic card in force increased 6%.
- U.S. non-T&E-related volume categories (which represented
approximately 68% of 2006 U.S. billed business) grew 15%,
while T&E volumes rose 12%.
- U.S. airline-related volume, which represented approximately
10% of total U.S. volumes during the year, increased 13% due
to a 4% increase in transactions and a 9% higher average
airline charge.
-- Adjusting for the impact of foreign exchange translation:
- Worldwide billed business and spending per proprietary basic card
in force increased 15% and 7%, respectively.
- Total billed business outside the U.S. rose 17%, reflecting solid
double-digit proprietary growth in all regions except for Latin
America. Excluding the impact of the sale in Brazil, Latin
America also exhibited double-digit proprietary growth.
- Within our proprietary business, billed business outside the U.S.
reflected 11% growth in consumer and small business spending, as
well as 17% growth in Corporate Services volumes.
- Spending per proprietary basic card in force outside the U.S.
rose 9%.
- Worldwide airline volumes, which represented approximately
12% of total volumes during the year, increased 14% on 6%
growth in transactions and an 8% increase in the average
airline charge.
o CARDMEMBER LENDING FINANCE CHARGE REVENUE, NET OF INTEREST: Increased 34%
on 29% growth in average worldwide lending balances on an owned basis and
a higher portfolio yield.
- Annualized net finance charge revenue as a percentage of average
loans in the worldwide owned portfolio was 9.5% in 2006 versus 9.1%
in 2005. The increase versus last year reflects a lower proportion of
the U.S. portfolio on promotional rates and increased finance charge
rates, which were partially offset by the reduction in finance charge
revenues related to cardmember completion of consumer debt repayment
programs, in addition to rising funding costs.
- Cardmember lending finance charge revenue is net of related interest of
$1.2B and $868MM in 2006 and 2005, respectively.
o NET CARD FEES: Decreased 2% as the benefit of card growth was offset by
the reclassification of certain card acquisition-related costs, beginning
prospectively July 1, 2006, from other operating expense to a reduction
in net card fees. The reclassification had no effect on net income and is
not included in the average fee per card calculation. The average annual
fee per proprietary card in force was $35 in 2006 versus $35 in 2005.
o TRAVEL COMMISSIONS AND FEES: Were unchanged versus last year reflecting a
6% increase in travel sales, a moderately reduced level of transactions
and lower average revenue per transaction, due in part to the ongoing
transition to online booking.
o OTHER COMMISSIONS AND FEES: Increased 8% primarily due to higher card-related
assessment and conversion revenues.
-19-
AMERICAN EXPRESS COMPANY
FULL YEAR 2006 OVERVIEW
CONSOLIDATED
o SECURITIZATION INCOME, NET: Increased 18% as a higher trust portfolio
yield, and a decrease in trust portfolio write-offs were partially offset
by greater interest expense due to a higher coupon rate paid to
certificate holders, a lower average securitization balance, and the
impact of higher than anticipated Cardmember completion of consumer debt
repayment programs and certain associated payment waivers. Securitization
income, net represents the non-credit provision components of the gains
from securitization activities within the USCS segment, impairment
charges, if any, of the related 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. The average balance of cardmember securitizations was
$20.4B in 2006, compared with $20.6B in 2005.
- - Components of Securitization Income, Net:
Years Ended Percentage
December 31, Inc/(Dec)
---------------------- -------------
2006 2005
---- ----
(millions)
Excess spread* $1,055 $811 30%
Servicing fees 407 412 (1)
Gains on sales from securitizations** 27 37 (27)
------- -------
Total securitization income $1,489 $1,260 18
======= =======
* Excess spread 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.
** Excludes $83MM and ($104MM) in 2006 and $144MM and ($118MM) in 2005
of impact from cardmember loan sales and maturities, respectively,
reflected in credit provision.
o OTHER INVESTMENT AND INTEREST INCOME, NET OF INTEREST: Increased 2% due
to higher interest rates on a greater level of short-term
investments.
- - Other investment and interest income is net of related interest of $420MM
and $321MM in 2006 and 2005, respectively.
o OTHER REVENUES: Increased 21% primarily due to the aforementioned gain in
the Travelers Cheque and Gift Card investment portfolio, as well as fees
associated with transition services agreements with Ameriprise Financial, Inc.
and higher network partner-related fees.
o MARKETING, PROMOTION, REWARDS AND CARDMEMBER SERVICES EXPENSES: Increased
12%, reflecting greater rewards costs and higher marketing and promotion
expenses.
o HUMAN RESOURCES EXPENSE: Increased 5% due to merit increases and larger
benefit-related costs, partially offset by a relatively flat level of
employees and lower severance-related costs versus last year.
o PROVISIONS FOR LOSSES AND BENEFITS: Increased 11% as the lending and the
investment certificate and other provision growth of 20% and 37%,
respectively, was partially offset by a 10% decline in the charge card
provision. The increase in the lending provision was driven by increased
loan volumes globally and higher loss rates outside the U.S., primarily
in Taiwan, partially offset by the favorable impact of lower
bankruptcy-related charge offs and strong credit quality in the U.S., and
lower than expected costs related to Hurricane Katrina losses that were
provided for last year. The investment certificate and other provision
rose due to higher interest rates on larger investment certificate
balances and increased merchant-related reserves. Compared to last
year, the charge provision declined reflecting the lower loss rate, lower
than expected costs for Hurricane Katrina losses that were provided for
last year, and improved results from collection activities.
- CREDIT QUALITY:
-- The charge card net loss ratio was 0.24% versus 0.26% last year.*
-- The lending net write-off rate for 2006 was 3.7% versus 4.1% for 2005.**
* There are no off-balance sheet charge card securitizations. Therefore,
"Owned basis" and "Managed Basis" credit quality statistics for the
charge card portfolio are the same.
** All lending statistics are presented here on a GAAP or "Owned Basis".
"Managed Basis" credit quality statistics are available in the Fourth
Quarter/Full Year 2006 Earnings Release on the Consolidated Selected
Statistical Information pages. Credit trends are generally consistent
under both reporting methods.
o PROFESSIONAL SERVICES EXPENSE: Rose 17% reflecting higher technology
service fees, greater business and service-related volumes, and increased
credit and collection costs.
o OCCUPANCY AND EQUIPMENT EXPENSE: Rose 4% due to costs associated with higher
business and service-related volumes.
o INTEREST EXPENSE: Rose 34% due to a higher effective cost of funds and
greater receivable balances.
o COMMUNICATIONS EXPENSE: Declined 2%.
-20-
AMERICAN EXPRESS COMPANY
FULL YEAR 2006 OVERVIEW
CONSOLIDATED
o OTHER EXPENSE: Decreased 1% due to the 2006 reclassification of certain
card acquisition-related costs as discussed previously and the gains on
the sales of our stake in EAB in 1Q '06, our operations in Brazil in 2Q
'06 and in Malaysia and Indonesia in 3Q '06. The decrease was partially
offset by the 9/11 related insurance settlement in 2Q '05 and higher volume
and technology-related costs throughout 2006.
CORPORATE & OTHER
Net expense was $212MM in 2006 compared with net expense of $67MM in 2005. The
2006 expense reflects the $17MM ($11MM after-tax) of reengineering costs. 2005
reflects $159MM of the tax benefits previously discussed, a $112MM ($73MM
after-tax) benefit related to the settlement of an insurance claim associated
with September 11, 2001, $105MM ($68MM after-tax) of reengineering costs and
$11MM after-tax of spin-off related expenses.
-21-
AMERICAN EXPRESS COMPANY
FULL YEAR 2006 OVERVIEW
U.S. CARD SERVICES
CONDENSED STATEMENTS OF INCOME
(GAAP BASIS)
(Preliminary)
Years Ended Percentage
(millions) December 31, Inc/(Dec)
---------------------------- ------------
2006 2005
---- ----
Net Revenues:
Discount revenue, net card fees and other $9,989 $8,926 12%
Cardmember Lending:
Finance charge revenue 3,434 2,408 43
Interest expense 957 616 55
------- -------
Net finance charge revenue 2,477 1,792 38
Securitization income, net 1,489 1,260 18
------- -------
Total 13,955 11,978 17
======= =======
Expenses:
Marketing, promotion, rewards and cardmember
services 4,509 3,911 15
Provision for losses 1,630 1,676 (3)
Human resources and other operating expenses 4,511 3,820 18
------- -------
Total 10,650 9,407 13
------- -------
Pretax segment income 3,305 2,571 29
Income tax provision 1,028 755 36
------- -------
Segment income $2,277 $1,816 25
======= =======
Years Ended Percentage
STATISTICAL INFORMATION December 31, Inc/(Dec)
---------------------------- ------------
2006 2005
---- ----
Card billed business (billions) $333.4 $292.8 14%
Average basic cardmember spending* $11,521 $10,996 5
* Proprietary cards only.
o BILLED BUSINESS: The 14% increase in billed business reflected a 5%
increase in spending per proprietary basic card and 9% growth in
basic cards in force.
- Within the U.S. consumer business, billed business grew 13%; small business
volumes rose 16%.
P&L DISCUSSION:
o NET INCOME: Increased 25% as net revenues increased 17% and expenses
increased 13%.
- 2006 included:
-- $68MM ($42MM after-tax) of gains in 4Q `06 related to the Travelers
Cheque and Gift Card investment portfolio rebalancing;
-- A $106MM ($69MM after-tax) charge in 1Q `06 related to a higher
redemption rate estimate within the U.S. Membership Rewards reserve;
-- A $72MM ($47MM after-tax) net reduction in 1Q '06 in finance charge
revenues related to higher than anticipated cardmember completion of
consumer debt repayment programs and certain associated payment waivers;
-- $35MM ($23MM after-tax) of charges related to reengineering
activities primarily within our Travelers Cheque business and
our operations area; and
-- A favorable impact from lower early credit write-offs, primarily
related to last year's bankruptcy legislation, and lower than
expected costs related to Hurricane Katrina.
- - PRE-TAX MARGIN: Was 23.7% in 2006 versus 21.5% in 2005.
- - EFFECTIVE TAX RATE: Was 31% in 2006 compared to 29% in 2005. 2005
included a 4Q `05 state tax benefit of $29MM.
o DISCOUNT REVENUE, NET CARD FEES AND OTHER REVENUES: Increased 12%, largely
due to higher billed business volumes.
o NET FINANCE CHARGE REVENUE: Increased 38% on 31% growth in average owned
lending balances and a higher net portfolio yield, partially offset by
the impact of higher than anticipated cardmember completion of consumer
debt repayment programs and associated payment waivers during 1Q '06.
-22-
AMERICAN EXPRESS COMPANY
FULL YEAR 2006 OVERVIEW
U.S. CARD SERVICES
- - Annualized net finance charge revenue as a percentage of average loans was
9.0% in 2006 versus 8.5% in 2005.
o MARKETING, PROMOTION, REWARDS AND CARDMEMBER SERVICES EXPENSES: Rose 15%
due to higher rewards costs, which reflect volume growth and the 1Q' 06
charge related to a higher ultimate redemption rate estimate within the
Membership Rewards reserve, and increased marketing and promotion costs.
o PROVISION FOR LOSSES: Decreased 3% as the impact of strong volume and
loan growth was more than offset by a comparatively lower level of
bankruptcy-related charge offs and Katrina-related reserves versus last
year, improved collections and continued strong credit quality.
- CREDIT QUALITY:
-- The charge card net loss ratio was 0.28% versus 0.30% last year.*
-- The lending net write-off rate for 2006 was 3.0% versus 3.9% for 2005.**
* There are no off-balance sheet charge card securitizations. Therefore,
"Owned basis" and "Managed Basis" credit quality statistics for the
charge card portfolio are the same.
** All lending statistics are presented here on a GAAP or "Owned Basis".
"Managed Basis" credit quality statistics are presented on page 24.
o HUMAN RESOURCES AND OTHER OPERATING EXPENSES: Increased 18% due to higher
interest expense, greater professional services expenses, increased human
resources expenses, higher technology service fees, and generally higher
volume-related and business-building expenses.
MANAGED BASIS
For a discussion of the managed basis presentation, please see page 12 of this
document.
The following information reconciles the GAAP basis presentation for certain
USCS income statement line items to the managed basis presentation, where
different:
Years Ended Percentage
December 31, Inc/(Dec)
---------------------- -----------------
(millions) 2006 2005
---- ----
o DISCOUNT REVENUE, NET CARD FEES AND OTHER:
Reported for the period (GAAP) $9,989 $8,926 12%
Securitization adjustments 199 210
Tax adjustments 217 226
------- ------
Managed discount revenue, net card fees
and other $10,405 $9,362 11
======= ======
o NET FINANCE CHARGE REVENUE:
Reported for the period (GAAP) $2,477 $1,792 38
Securitization adjustments 1,880 1,953
------- ------
Managed net finance charge revenue $4,357 $3,745 16
======= ======
o SECURITIZATION INCOME, NET:
Reported for the period (GAAP) $1,489 $1,260 18
Securitization adjustments (1,489) (1,260)
------- ------
Managed securitization income, net $ - $ - -
======= ======
o PROVISION FOR LOSSES:
Reported for the period (GAAP) $1,630 $1,676 (3)
Securitization adjustments 550 924
------- ------
Managed provision for losses $2,180 $2,600 (16)
======= ======
-23-
AMERICAN EXPRESS COMPANY
FULL YEAR 2006 OVERVIEW
U.S. CARD SERVICES
MANAGED P&L DISCUSSION
o DISCOUNT REVENUE, NET CARD FEES AND OTHER REVENUES: Increased 11%, largely
due to higher billed business volumes.
o NET FINANCE CHARGE REVENUE: Increased 16% on 16% growth in average
managed lending balances and a higher net portfolio yield, partially
offset by costs related to the higher than anticipated cardmember
completion of consumer debt repayment programs and associated payment
waivers.
- Annualized net finance charge revenue as a percentage of average loans was
9.1% in 2006 versus 9.0% in 2005.
o PROVISION FOR LOSSES: Declined 16% as the impact of strong volume and
loan growth were more than offset by the comparatively lower level of
bankruptcy-related charge offs and Katrina-related reserves versus last
year, as well as improved collections and continued strong credit
quality.
- - CARDMEMBER LENDING: *
-- The lending net write-off rate for 2006 was 2.9% versus 4.1% for 2005.
* Managed basis presentation. There are no off-balance sheet Charge Card
securitizations. Therefore, all credit quality statistics for the
Charge Card portfolio are on an "Owned Basis" as presented on page 23.
-24-
AMERICAN EXPRESS COMPANY
FULL YEAR 2006 OVERVIEW
INTERNATIONAL CARD & GLOBAL COMMERCIAL SERVICES
CONDENSED STATEMENTS OF INCOME
(GAAP BASIS)
(Preliminary)
Years Ended Percentage
December 31, Inc/(Dec)
---------------------------- --------------
(millions) 2006 2005
---- ----
Net Revenues:
Discount revenue, net card fees and other $8,656 $8,221 5%
Cardmember Lending:
Finance charge revenue 1,240 1,035 20
Interest expense 432 351 23
------ ------
Net finance charge revenue 808 684 18
------ ------
Total 9,464 8,905 6
------ ------
Expenses:
Marketing, promotion, rewards and cardmember services 1,429 1,269 13
Provision for losses and benefits 1,358 1,023 33
Human resources and other operating expenses 5,529 5,520 -
------ ------
Total 8,316 7,812 6
------ ------
Pretax segment income 1,148 1,093 5
Income tax provision 263 194 36
------ ------
Segment income $885 $899 (2)
====== ======
STATISTICAL INFORMATION Years Ended Percentage
December 31, Inc/(Dec)
---------------------------- --------------
2006 2005
---- ----
Card billed business (billions) $193.1 $168.5 15%
Average basic cardmember spending* $10,681 $9,641 11
* Proprietary cards only.
o BILLED BUSINESS: The 15% increase in billed business reflects an 11%
increase in spending per proprietary basic card and a 1% decline in basic
cards in force after the transfer of cards in Brazil, Malaysia and
Indonesia to GNMS as previously discussed.
-- Adjusting for the impacts of foreign exchange translation, and
the sales of our operations in Brazil, Malaysia and Indonesia,
billed business and spending per proprietary basic card in force
increased 15% and 9%, respectively, and all of AXP's major
geographic regions experienced double digit growth.
- International consumer and small business spending rose 13%; global
corporate spending rose 16%.
P&L DISCUSSION
o NET INCOME: Decreased 2% versus last year as revenues and expenses both rose
by 6%.
- 2006 included:
-- $152MM ($133MM after-tax) of gains related to the completion of
the sale of our card and related operations in Brazil in 2Q'06
and in Malaysia and Indonesia in 3Q'06;
-- An $88MM ($40MM after-tax) gain related to the completion of the sale of
our stake in EAB in 1Q '06;
-- $68MM ($44MM after-tax) of charges related to a higher redemption rate
estimate within the Membership Rewards reserves in 1Q '06 and 2Q '06; and
-- A higher provision for credit losses in Taiwan due primarily to the
impact of industry-wide credit issues within the market.
- 2006 and 2005 also included $94MM ($61MM after-tax) and $168MM
($109MM after-tax), respectively, of reengineering costs primarily
related to restructuring efforts in the Corporate Travel business and
international operations area.
- - PRE-TAX MARGIN: Was 12.1% in 2006 versus 12.3% in 2005.
-25-
AMERICAN EXPRESS COMPANY
FULL YEAR 2006 OVERVIEW
INTERNATIONAL CARD & GLOBAL COMMERCIAL SERVICES
- - EFFECTIVE TAX RATE: Was 23% in 2006 versus 18% in 2005. 2006 included
a number of items previously discussed during the year which
collectively did not have a significant impact on the effective tax
rate. The 2005 rate reflects tax benefits of $33MM resulting from the
resolution of IRS audits of previous years' tax returns.
o DISCOUNT REVENUE, NET CARD FEES AND OTHER REVENUES: The increase of 5% versus
2005 reflects the higher level of card spending, which was partially offset
by a decrease in net card fees due to the reclassification of certain
card acquisition-related costs referenced previously. Growth was also
suppressed by the difficult corporate travel environment, increased
incentives for corporate clients associated with growth in corporate
volumes, and the impact of the sales of card-related operations in
Brazil, Malaysia and Indonesia.
o NET FINANCE CHARGE REVENUE: Increased 18% as 20% growth in average lending
balances was partially offset by a lower net yield.
- Annualized net finance charge revenue as a percent of average loans was 9.1%
in 2006 versus 9.3% in 2005.
o MARKETING, PROMOTION, REWARDS AND CARDMEMBER SERVICES EXPENSES: Increased
13%, due to greater rewards costs, reflecting volume growth and the
higher Membership Rewards ultimate redemption rate estimate adjustment
previously discussed, partially offset by a moderate reduction in
marketing and promotion costs.
o PROVISION FOR LOSSES AND BENEFITS: Increased 33% principally due to
higher interest rates on investment certificate balances and strong
volume and loan growth, as well as a higher level of charge offs
primarily related to industry-wide credit issues in Taiwan.
- CREDIT QUALITY:*
-- The charge card net loss ratio was 0.18% versus 0.21% last year.
-- The lending net write-off rate for 2006 was 5.9% versus 4.7% for 2005.
* There are no off-balance sheet charge card and currently no
off-balance sheet lending securitizations. Therefore, all credit
quality statistics for the international charge card and lending
portfolios are on an "Owned Basis".
o HUMAN RESOURCES AND OTHER OPERATING EXPENSES: Were flat as higher
interest, human resources, and professional services expenses were offset
by the previously discussed reclassification of certain card
acquisition-related costs and the gains on the sale of our stake in EAB
as well as the sales of card operations in Brazil, Malaysia and
Indonesia.
-26-
AMERICAN EXPRESS COMPANY
FULL YEAR 2006 OVERVIEW
GLOBAL NETWORK & MERCHANT SERVICES
CONDENSED STATEMENTS OF INCOME
(GAAP BASIS)
(Preliminary)
Years Ended Percentage
December 31, Inc/(Dec)
---------------------------- --------------
(millions) 2006 2005
---- ----
Net Revenues:
Discount revenue, fees and other $3,161 $2,747 15%
------- -------
Expenses:
Marketing and promotion 518 604 (14)
Provision for losses 89 66 35
Human resources and other operating expenses 1,366 1,195 14
------- -------
Total 1,973 1,865 6
------- -------
Pretax segment income 1,188 882 35
------- -------
Income tax provision 409 309 32
------- -------
Segment income $779 $573 36
======= =======
STATISTICAL INFORMATION Years Ended Percentage
December 31, Inc/(Dec)
----------------------------- -------------
2006 2005
---- ----
Global card billed business*(billions) $561.5 $484.4 16%
Global Network Services:**
Card billed business (billions) $35.4 $24.0 48%
* Includes activities related to proprietary cards (including cash advances),
cards issued under network partnerships, and certain insurance fees charged
on proprietary cards.
** 2006 Card billed business and total cards in force include $2.8B of billed
business associated with the transfer of 1.3MM proprietary cards in Brazil
in 2Q '06 and 0.2MM proprietary cards in Malaysia and Indonesia during 3Q
'06 from ICGCS to GNS.
P&L DISCUSSION
o NET INCOME: Increased 36% on 15% revenue growth and a 6% increase in
expenses. 2006 included a $25MM ($22MM after-tax) gain related to the
sale of our merchant-related operations in Brazil during 2Q '06,
partially offset by an adjustment in amortization relating to an overseas
joint venture. 2006 also included $8MM ($5MM after-tax) of reengineering
costs, compared to $3MM ($2MM after-tax) in 2005.
- PRE-TAX MARGIN: Was 37.6% in 2006 versus 32.1% in 2005.
- EFFECTIVE TAX RATE: Was 34% in 2006 versus 35% in 2005.
o DISCOUNT REVENUE, FEES AND OTHER REVENUE: Increased 15% reflecting growth
in merchant-related fees, primarily generated from the 16% increase in
global card billed business, as well as higher network partner-related
revenues.
o MARKETING AND PROMOTION EXPENSES: Decreased 14%, reflecting a reduction
in brand-related advertising costs versus last year when the "My Life, My
Card (SM)" campaign was in a particularly active phase.
o PROVISION FOR LOSSES: Increased 35%, due to higher merchant-related
provisions.
o HUMAN RESOURCES AND OTHER OPERATING EXPENSES: Increased 14% reflecting higher
business volumes, and greater salary, incentive 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 increase also reflected an adjustment in
amortization of an intangible asset relating to an overseas joint
venture, partially offset by the merchant-related Brazil gain.
-27-
INFORMATION RELATED TO FORWARD LOOKING STATEMENTS
This release 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 revenue growth and
achieve sufficient margins, fluctuations in the capital required to support
its businesses, the mix of the Company's financings, and fluctuations in the
level of the Company's shareholders' equity; 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 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; fluctuations in interest rates, which
impact the Company's borrowing costs and return on lending products; 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, 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; 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.
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