UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

 

 

SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended June 30, 2007

 

or

 

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

 

 

SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period from            to           

 

Commission file number 1-7657

 

AMERICAN EXPRESS COMPANY

(Exact name of registrant as specified in its charter)

 

New York

 

13-4922250

(State or other jurisdiction of

 

(I.R.S. Employer Identification No.)

incorporation or organization)

 

 

 

 

 

World Financial Center, 200 Vesey Street, New York, NY

 

10285

(Address of principal executive offices )

 

(Zip Code)

 

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

 

None

Former name, former address and former fiscal year, if changed since last report.

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

 

 

Yes   x

No   o

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act). (Check one):

 

Large accelerated filer   x

 

Accelerated filer   o

 

Non-accelerated filer   o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

 

 

Yes   o

No   x

 

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding at July 23, 2007

Common Shares (par value $.20 per share)

 

1,182,884,415 shares

 

 



AMERICAN EXPRESS COMPANY

 

FORM 10-Q

 

INDEX

 

 

 

Page No.

 

 

 

 

Part I.

 

Financial Information:

 

 

 

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Income – Three months ended June 30, 2007 and 2006

1

 

 

 

 

 

 

 

 

Consolidated Statements of Income – Six months ended June 30, 2007 and 2006

2

 

 

 

 

 

 

 

 

Consolidated Balance Sheets – June 30, 2007 and December 31, 2006

3

 

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows – Six months ended June 30, 2007 and 2006

4

 

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements

 

5 – 13

 

 

 

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

14 – 39

 

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

39

 

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

39 – 40

 

 

 

 

Part II.

 

Other Information:

 

 

 

 

 

 

Item 1.

Legal Proceedings

41 – 44

 

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

45

 

 

 

 

 

 

 

Item 4.

Submission of Matters to a Vote of Security Holders

46

 

 

 

 

 

 

 

Item 6.

Exhibits

 

46

 

 

 

 

 

 

 

 

Signatures

 

47

 

 

 

 

 

 

 

Exhibit Index

 

E-1

 



 

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

 

AMERICAN EXPRESS COMPANY

CONSOLIDATED STATEMENTS OF INCOME
(Millions, except per share amounts)
(Unaudited)

 

 

 

Three Months Ended

 

 

 

June 30,

 

 

 

2007

 

2006

 

Revenues

 

 

 

 

 

Discount revenue

 

$

3,670

 

$

3,292

 

Net card fees

 

500

 

533

 

Travel commissions and fees

 

491

 

483

 

Other commissions and fees

 

681

 

642

 

Securitization income, net

 

332

 

372

 

Other

 

453

 

415

 

Total

 

6,127

 

5,737

 

Interest income

 

 

 

 

 

Cardmember lending finance revenue

 

1,514

 

1,100

 

International banking

 

282

 

252

 

Other

 

276

 

196

 

Total

 

2,072

 

1,548

 

Total revenues

 

8,199

 

7,285

 

Interest expense

 

 

 

 

 

Cardmember lending

 

431

 

277

 

International banking

 

135

 

93

 

Charge card and other

 

503

 

373

 

Total

 

1,069

 

743

 

Revenues net of interest expense

 

7,130

 

6,542

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

Marketing, promotion, rewards and cardmember services

 

1,828

 

1,671

 

Human resources

 

1,331

 

1,276

 

Professional services

 

698

 

658

 

Occupancy and equipment

 

379

 

365

 

Communications

 

116

 

113

 

Other

 

345

 

287

 

Total

 

4,697

 

4,370

 

Provisions for losses and benefits

 

 

 

 

 

Charge card

 

233

 

192

 

Cardmember lending

 

638

 

406

 

International banking and other (including investment certificates)

 

122

 

132

 

Total

 

993

 

730

 

Pretax income from continuing operations

 

1,440

 

1,442

 

Income tax provision

 

378

 

470

 

Income from continuing operations

 

1,062

 

972

 

Loss from discontinued operations, net of tax

 

(5

)

(27

)

Net income

 

$

 1,057

 

 

$

 945

 

 

 

 

 

 

 

Earnings per Common Share — Basic:

 

 

 

 

 

Income from continuing operations

 

$

0.90

 

$

0.80

 

Loss from discontinued operations

 

 

(0.02

)

Net income

 

$

0.90

 

$

0.78

 

 

 

 

 

 

 

Earnings per Common Share — Diluted:

 

 

 

 

 

Income from continuing operations

 

$

0.88

 

$

0.78

 

Loss from discontinued operations

 

 

(0.02

)

Net income

 

$

0.88

 

$

0.76

 

 

 

 

 

 

 

Average common shares outstanding for earnings per common share:

 

 

 

 

 

Basic

 

1,179

 

1,217

 

Diluted

 

1,203

 

1,242

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

0.15

 

$

0.15

 

 

See Notes to Consolidated Financial Statements.

 

1



 

AMERICAN EXPRESS COMPANY

CONSOLIDATED STATEMENTS OF INCOME
(Millions, except per share amounts)
(Unaudited)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2007

 

2006

 

Revenues

 

 

 

 

 

Discount revenue

 

$

7,025

 

$

6,261

 

Net card fees

 

984

 

1,053

 

Travel commissions and fees

 

928

 

901

 

Other commissions and fees

 

1,303

 

1,281

 

Securitization income, net

 

789

 

758

 

Other

 

868

 

811

 

Total

 

11,897

 

11,065

 

Interest income

 

 

 

 

 

Cardmember lending finance revenue

 

2,882

 

2,047

 

International banking

 

546

 

509

 

Other

 

505

 

384

 

Total

 

3,933

 

2,940

 

Total revenues

 

15,830

 

14,005

 

Interest expense

 

 

 

 

 

Cardmember lending

 

816

 

523

 

International banking

 

261

 

181

 

Charge card and other

 

955

 

706

 

Total

 

2,032

 

1,410

 

Revenues net of interest expense

 

13,798

 

12,595

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

Marketing, promotion, rewards and cardmember services

 

3,292

 

3,193

 

Human resources

 

2,611

 

2,516

 

Professional services

 

1,327

 

1,219

 

Occupancy and equipment

 

749

 

711

 

Communications

 

232

 

226

 

Other

 

694

 

565

 

Total

 

8,905

 

8,430

 

Provisions for losses and benefits

 

 

 

 

 

Charge card

 

442

 

401

 

Cardmember lending

 

1,212

 

727

 

International banking and other (including investment certificates)

 

205

 

270

 

Total

 

1,859

 

1,398

 

Pretax income from continuing operations

 

3,034

 

2,767

 

Income tax provision

 

907

 

919

 

Income from continuing operations

 

2,127

 

1,848

 

Loss from discontinued operations, net of tax

 

(13

)

(30

)

Net income

 

$

2,114

 

$

1,818

 

 

 

 

 

 

 

Earnings per Common Share — Basic:

 

 

 

 

 

Income from continuing operations

 

$

1.80

 

$

1.51

 

Loss from discontinued operations

 

(0.01

)

(0.02

)

Net income

 

$

1.79

 

$

1.49

 

 

 

 

 

 

 

Earnings per Common Share — Diluted:

 

 

 

 

 

Income from continuing operations

 

$

1.76

 

$

1.48

 

Loss from discontinued operations

 

(0.01

)

(0.03

)

Net income

 

$

1.75

 

$

1.45

 

 

 

 

 

 

 

Average common shares outstanding for earnings per common share:

 

 

 

 

 

Basic

 

1,183

 

1,224

 

Diluted

 

1,207

 

1,250

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

0.30

 

$

0.27

 

 

See Notes to Consolidated Financial Statements.

 

2



 

AMERICAN EXPRESS COMPANY
CONSOLIDATED BALANCE SHEETS

(Millions, except share data)

(Unaudited)

 

 

 

June 30,

 

December 31,

 

 

 

2007

 

2006

 

 

 

 

 

 

 

Assets

 

 

 

 

 

Cash and cash equivalents

 

$

7,371

 

$

7,956

 

Accounts receivable and accrued interest:

 

 

 

 

 

Cardmember receivables, less reserves: 2007, $981; 2006, $981

 

37,421

 

36,386

 

Other receivables, less reserves: 2007, $44; 2006, $42

 

2,080

 

2,465

 

Investments

 

21,417

 

20,990

 

Loans:

 

 

 

 

 

Cardmember lending, less reserves: 2007, $1,417; 2006, $1,171

 

46,861

 

42,135

 

International banking, less reserves: 2007, $69; 2006, $64

 

7,685

 

7,160

 

Other, less reserves: 2007, $42; 2006, $34

 

901

 

953

 

Land, buildings and equipment – at cost, less accumulated
depreciation: 2007, $3,401; 2006, $3,169

 

2,575

 

2,448

 

Other assets

 

8,061

 

7,360

 

Total assets

 

$

134,372

 

$

127,853

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

Customers’ deposits

 

$

22,625

 

$

24,656

 

Travelers Cheques outstanding

 

7,140

 

7,215

 

Accounts payable

 

9,647

 

8,764

 

Investment certificate reserves

 

5,626

 

6,058

 

Short-term debt

 

15,802

 

15,162

 

Long-term debt

 

49,873

 

42,747

 

Other liabilities

 

13,024

 

12,740

 

Total liabilities

 

123,737

 

117,342

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

Common shares, $.20 par value, authorized 3.6 billion shares; issued and outstanding 1,182 million shares in 2007 and 1,199 million shares in 2006

 

236

 

240

 

Additional paid-in capital

 

9,998

 

9,638

 

Retained earnings

 

1,024

 

1,153

 

Accumulated other comprehensive income (loss), net of tax:

 

 

 

 

 

Net unrealized securities (losses) gains

 

(118

)

92

 

Net unrealized derivatives gains

 

49

 

27

 

Foreign currency translation adjustments

 

(231

)

(222

)

Net unrealized pension and other postretirement benefit costs

 

(323

)

(417

)

Total accumulated other comprehensive loss

 

(623

)

(520

)

Total shareholders’ equity

 

10,635

 

10,511

 

Total liabilities and shareholders’ equity

 

$

134,372

 

$

127,853

 

 

See Notes to Consolidated Financial Statements.

 

3



 

AMERICAN EXPRESS COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Millions)

(Unaudited)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2007

 

2006

 

Cash Flows from Operating Activities

 

 

 

 

 

Net income

 

$

2,114

 

$

1,818

 

Loss from discontinued operations, net of tax

 

13

 

30

 

Income from continuing operations

 

2,127

 

1,848

 

Adjustments to reconcile income from continuing operations to net cash provided by operating activities:

 

 

 

 

 

Provisions for losses and benefits

 

1,955

 

1,381

 

Depreciation and amortization

 

339

 

320

 

Deferred taxes, acquisition costs and other

 

(303

)

191

 

Stock-based compensation

 

144

 

149

 

Changes in operating assets and liabilities, net of effects of acquisitions and dispositions:

 

 

 

 

 

Accounts receivable and accrued interest

 

202

 

(23

)

Other operating assets

 

185

 

(385

)

Accounts payable and other liabilities

 

827

 

970

 

(Decrease) increase in Travelers Cheques outstanding

 

(76

)

7

 

Net cash used in operating activities attributable to discontinued operations

 

(13

)

(1

)

Net cash provided by operating activities

 

5,387

 

4,457

 

Cash Flows from Investing Activities

 

 

 

 

 

Sale of investments

 

2,074

 

2,308

 

Maturity and redemption of investments

 

3,843

 

5,986

 

Purchase of investments

 

(6,966

)

(8,386

)

Net increase in cardmember loans/receivables

 

(7,355

)

(4,253

)

Proceeds from cardmember loan securitizations

 

2,894

 

2,893

 

Maturities of cardmember loan securitizations

 

(2,780

)

(3,785

)

Loan operations and principal collections for international banking, net

 

(528

)

(162

)

Purchase of land, buildings and equipment

 

(431

)

(284

)

Sale of land, buildings and equipment

 

23

 

20

 

Dispositions, net of cash sold

 

19

 

456

 

Net cash used in investing activities attributable to discontinued operations

 

 

(3

)

Net cash used in investing activities

 

(9,207

)

(5,210

)

Cash Flows from Financing Activities

 

 

 

 

 

Net change in customers’ deposits

 

(2,063

)

(2,670

)

Sale of investment certificates

 

1,593

 

2,883

 

Redemption of investment certificates

 

(2,049

)

(3,161

)

Net increase (decrease) in debt with maturities of three months or less

 

2,756

 

(1,342

)

Issuance of debt

 

12,596

 

15,222

 

Principal payments on debt

 

(7,883

)

(8,664

)

Issuance of American Express common shares and other

 

541

 

536

 

Repurchase of American Express common shares

 

(1,871

)

(2,165

)

Dividends paid

 

(359

)

(299

)

Net cash (used in) provided by financing activities attributable to discontinued operations

 

(50

)

4

 

Net cash provided by financing activities

 

3,211

 

344

 

Effect of exchange rate changes on cash

 

24

 

81

 

Net decrease in cash and cash equivalents

 

(585

)

(328

)

Cash and cash equivalents at beginning of period

 

7,956

 

7,126

 

Cash and cash equivalents at end of period

 

$

7,371

 

$

6,798

 

 

See Notes to Consolidated Financial Statements.

 

4



 

AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.              Basis of Presentation

 

The accompanying Consolidated Financial Statements should be read in conjunction with the financial statements which are incorporated by reference in the Annual Report on Form 10-K of American Express Company (the Company) for the year ended December 31, 2006.  Certain reclassifications of prior period amounts have been made to conform to the current presentation, including revenue and expense reclassifications contained in the current report on Form 8-K dated March 30, 2007.  In addition, beginning prospectively as of July 1, 2006, certain card acquisition-related costs were reclassified from other expenses to a reduction in net card fees.

 

The interim financial information in this report has not been audited.  In the opinion of management, all adjustments necessary for a fair statement of the consolidated financial position and the consolidated results of operations for the interim periods have been made.  All adjustments made were of a normal, recurring nature.  Results of operations reported for interim periods are not necessarily indicative of results for the entire year.

 

As discussed in the Company’s Form 10-Q for the period ended March 31, 2007, the Travelers Cheque and Prepaid Services business and international banking businesses currently included in the Corporate & Other segment were previously included in the U.S. Card Services and International Card & Global Commercial Services segments, respectively, prior to the reportable operating segment modifications made effective in the first quarter of 2007. The financial data for all periods included herein reflect these modifications.

 

During the second quarter of 2007, the Company announced organizational changes effective July 1, 2007, which reflect a reorganization of the Company into two distinct customer-focused groups: Global Consumer Group and Global Business-to-Business Group.  The Company is reviewing the impact of these changes on its reportable operating segment disclosures, and expects financial disclosures to reflect these organizational changes in the third quarter of 2007.

 

Recently Issued Accounting Standards

 

The Financial Accounting Standards Board (FASB) has recently issued the following accounting standards, which are effective beginning January 1, 2008. The Company is currently evaluating the impact of these accounting standards.

 

                  Statement of Financial Accounting Standard (SFAS) No. 157, “Fair Value Measurements” (SFAS No. 157), establishes a framework for measuring fair value and applies broadly to financial and non-financial assets and liabilities measured at fair value under existing authoritative accounting pronouncements.  SFAS No. 157 establishes a fair value hierarchy that prioritizes inputs to valuation techniques used for financial instruments without active markets and for non-financial assets and liabilities.  SFAS No. 157 also expands disclosure requirements regarding methods used to measure fair value and the effects on earnings.

 

                  SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115” (SFAS No. 159), provides companies with an option to report selected financial assets and liabilities at fair value.

 

                  FASB Staff Position No. FIN 39-1, “Amendment of FASB Interpretation No. 39” (FIN 39-1), permits a reporting entity to offset fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) against fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting arrangement. The Company does not expect FIN 39-1 to have a material impact on its Consolidated Financial Statements.

 

5



 

AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

                  Emerging Issues Task Force Issue No. 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards” (EITF 06-11), clarifies when income tax benefits for dividends paid on share-based payment awards should be recognized in equity or the income statement.  The Company does not expect EITF 06-11 to have a material impact on its Consolidated Financial Statements.

 

2.              Discontinued Operations

 

Results from discontinued operations included losses related to businesses disposed of in previous years, as follows:

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

(Millions)

 

2007

 

2006

 

2007

 

2006

 

Revenues net of interest expense

 

$

 

$

9

 

$

 

$

9

 

 

 

 

 

 

 

 

 

 

 

Pretax loss from discontinued operations

 

$

(2

)

$

(55

)

$

(14

)

$

(60

)

Income tax provision (benefit)

 

3

 

(28

)

(1

)

(30

)

Loss from discontinued operations, net of tax

 

$

(5

)

$

(27

)

$

(13

)

$

(30

)

 

 

6



 

AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

3.              Guarantees

 

The Company provides cardmember protection plans that cover losses associated with purchased products, as well as certain other guarantees in the ordinary course of business that are within the scope of FASB Financial Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (FIN 45).

 

The following table provides information related to such guarantees as of June 30, 2007 and December 31, 2006:

 

 

 

June 30, 2007

 

December 31, 2006

 

 

 

Maximum amount of 
undiscounted future 
payments (a) (Billions)

 

Amount of 
related liability
(b)
(Millions)

 

Maximum amount of 
undiscounted future
payments (a) (Billions)

 

Amount of 
related liability
(b)
(Millions)

 

 

 

 

 

 

 

 

 

 

 

Type of Guarantee:

 

 

 

 

 

 

 

 

 

Card and travel operations (c)

 

$

77

 

$

68

 

$

75

 

$

119

 

International banking and other (d)

 

2

 

81

 

2

 

77

 

Total

 

$

79

 

$

149

 

$

77

 

$

196

 

 


(a) Calculated based on the hypothetical scenario that all claims occur within the next 12 months.

 

(b) Included as part of other liabilities on the Company’s Consolidated Balance Sheets.  The decrease in the liability from December 31, 2006 to June 30, 2007, results substantially from a reduction in merchant-related reserves primarily related to the airline industry.

 

(c) Includes Credit Card Registry, Merchandise Protection, Account Protection, Merchant Protection, and Baggage Protection. The Company generally has no collateral or other recourse provisions related to these guarantees.

 

(d) Includes contingent consideration obligations as well as guarantees the Company provides through its international banking business, such as financial letters of credit, performance guarantees, and financial guarantees. The international banking guarantees range in term from three months to one year.  The Company receives a fee related to these guarantees, many of which help facilitate cross-border transactions.  The maximum potential exposure related to the Company’s international banking guarantees at both June 30, 2007 and December 31, 2006, was approximately $1 billion for which the Company held supporting collateral of approximately $920 million and $940 million, respectively.

 

4.              Comprehensive Income

 

The components of comprehensive income, net of related tax, were as follows:

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

(Millions)

 

2007

 

2006

 

2007

 

2006

 

Net income

 

$

1,057

 

$

945

 

$

2,114

 

$

1,818

 

Other comprehensive income (losses):

 

 

 

 

 

 

 

 

 

Net unrealized securities losses (a)

 

(155

)

(88

)

(210

)

(166

)

Net unrealized derivative gains

 

32

 

23

 

22

 

33

 

Foreign currency translation adjustments

 

(8

)

137

 

(9

)

174

 

Net unrealized pension and other postretirement benefit costs (b)

 

8

 

 

94

 

 

Total

 

$

934

 

$

1,017

 

$

2,011

 

$

1,859

 

 


(a) In connection with the initial adoption of SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments – an amendment of FASB Statements No. 133 and 140” (SFAS No. 155), as of January 1, 2007, the Company recognized a gain of $80 million ($50 million after-tax) related to the fair value of the interest-only strips, which was recorded in other comprehensive income (loss) in previous periods. Changes in the fair value of the interest-only strip subsequent to the adoption of this standard are reflected in securitization income, net.

 

(b) The six months ended June 30, 2007, represents primarily the impact of remeasuring U.S. plan obligations in January 2007 based on updated census and claims information, which increased the funded status of the Company’s pension and other postretirement benefit obligations and the recognition of previously unamortized losses/costs as a result of the curtailment discussed below in Note 5.

 

7



 

AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

5.              Retirement Plans

 

The components of the net pension and postretirement benefit cost for all defined benefit plans accounted for under SFAS No. 87, “Employers’ Accounting for Pensions,” and SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions,” were as follows:

 

 

 

 

Three Months Ended June 30,

 

 

 

Pension Plans

 

Postretirement Plans

 

(Millions)

 

2007

 

2006

 

2007

 

2006

 

Service cost

 

$

27

 

$

29

 

$

1

 

$

1

 

Interest cost

 

34

 

31

 

5

 

5

 

Expected return on plan assets

 

(43

)

(37

)

N/A

 

N/A

 

Amortization of prior service cost

 

1

 

1

 

 

 

Recognized net actuarial loss

 

10

 

9

 

2

 

4

 

Net periodic benefit cost

 

$

29

 

$

33

 

$

8

 

$

10

 

 

 

 

 

Six Months Ended June 30,

 

 

 

Pension Plans

 

Postretirement Plans

 

(Millions)

 

2007

 

2006

 

2007

 

2006

 

Service cost

 

$

55

 

$

58

 

$

3

 

$

3

 

Interest cost

 

70

 

62

 

10

 

10

 

Expected return on plan assets

 

(84

)

(74

)

N/A

 

N/A

 

Amortization of prior service cost

 

1

 

1

 

(1

)

(1

)

Recognized net actuarial loss

 

20

 

19

 

4

 

8

 

Settlement/curtailment (gain)/loss (a)

 

(63

)

1

 

 

 

Net periodic benefit cost

 

$

(1

)

$

67

 

$

16

 

$

20

 

 


(a) In January 2007, the Company approved amendments to its defined benefit plans in the United States effective July 1, 2007, which provide that active participants will immediately vest in their accrued benefits, but no longer accrue future benefits other than interest credits under the plans. As a result of this action, there was a net reduction in the projected benefit obligation of $91 million and a related curtailment gain of $63 million ($39 million after-tax), at the time of the plan amendment. In combination with these changes, the Company has modified the existing defined contribution plan in the United States to provide for greater Company contributions to employees who were employed by the Company at March 31, 2007.

 

8



 

AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

6.              Earnings per Common Share (EPS)

 

Basic EPS is computed using the average actual shares outstanding during the period.  Diluted EPS is basic EPS adjusted for the dilutive effect of stock options, restricted stock awards, and other financial instruments that may be converted into common shares.  The computations of basic and diluted EPS are as follows:

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

(Millions, except per share amounts)

 

2007

 

2006

 

2007

 

2006

 

Numerator:

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

1,062

 

$

972

 

$

2,127

 

$

1,848

 

Loss from discontinued operations, net of tax

 

(5

)

(27

)

(13

)

(30

)

Net income

 

$

1,057

 

$

945

 

$

2,114

 

$

1,818

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

Basic:

Weighted-average shares outstanding during the period

 

1,179

 

1,217

 

1,183

 

1,224

 

Add:

Dilutive effect of stock options, restricted stock awards and other dilutive securities

 

24

 

25

 

24

 

26

 

Diluted

 

1,203

 

1,242

 

1,207

 

1,250

 

 

 

 

 

 

 

 

 

 

 

Basic EPS:

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.90

 

$

0.80

 

$

1.80

 

$

1.51

 

Loss from discontinued operations

 

 

(0.02

)

(0.01

)

(0.02

)

Net income

 

$

0.90

 

$

0.78

 

$

1.79

 

$

1.49

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS:

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.88

 

$

0.78

 

$

1.76

 

$

1.48

 

Loss from discontinued operations

 

 

(0.02

)

(0.01

)

(0.03

)

Net income

 

$

0.88

 

$

0.76

 

$

1.75

 

$

1.45

 

 

For the three months ended June 30, 2007 and 2006, the dilutive effect of unexercised stock options excludes 9 million and 6 million options, respectively, from the computation of EPS because inclusion of the options would have been anti-dilutive.  Similarly, the number of these excluded stock options for the six months ended June 30, 2007 and 2006, was 8 million and 6 million, respectively. See Notes 8 and 18 to the Consolidated Financial Statements in the Company’s Annual Report on
Form 10-K for the year ended December 31, 2006, for discussion of the Company’s subordinated debentures, including the circumstances under which additional common shares would be reflected in the computation of EPS.

 

9



 

AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

7.     Reportable Operating Segment Information

 

The Company is a leading global payments, network, and travel company that is principally engaged in businesses comprising three reportable operating segments: U.S. Card Services (USCS), International Card & Global Commercial Services (ICGCS), and Global Network & Merchant Services (GNMS). During 2006, the Company completed the sales of its card and merchant-related activities in Brazil, Malaysia, and Indonesia, which were included in ICGCS prior to the sales. The Company will continue to maintain its presence in the card and merchant-related businesses within Brazil, Malaysia, and Indonesia through its Global Network Services arrangements, which are reflected in the GNMS segment.

 

The following table presents certain operating segment information, which reflects the modifications made effective in the first quarter of 2007 as discussed in Note 1:

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

(Millions)

 

2007

 

2006

 

2007

 

2006

 

Revenues, excluding interest income:

 

 

 

 

 

 

 

 

 

USCS

 

$

2,921

 

$

2,760

 

$

5,753

 

$

5,339

 

ICGCS

 

2,051

 

1,980

 

3,948

 

3,791

 

GNMS

 

886

 

762

 

1,686

 

1,446

 

Corporate & Other, including adjustments and eliminations

 

269

 

235

 

510

 

489

 

Total

 

$

6,127

 

$

5,737

 

$

11,897

 

$

11,065

 

 

 

 

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

 

 

 

 

USCS

 

$

1,232

 

$

814

 

$

2,326

 

$

1,489

 

ICGCS

 

431

 

353

 

808

 

698

 

GNMS

 

1

 

3

 

1

 

4

 

Corporate & Other, including adjustments and eliminations

 

408

 

378

 

798

 

749

 

Total

 

$

2,072

 

$

1,548

 

$

3,933

 

$

2,940

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

USCS

 

$

593

 

$

404

 

$

1,155

 

$

760

 

ICGCS

 

323

 

250

 

601

 

472

 

GNMS

 

(79

)

(74

)

(156

)

(137

)

Corporate & Other, including adjustments and eliminations

 

232

 

163

 

432

 

315

 

Total

 

$

1,069

 

$

743

 

$

2,032

 

$

1,410

 

 

 

 

 

 

 

 

 

 

 

Revenues net of interest expense:

 

 

 

 

 

 

 

 

 

USCS

 

$

3,560

 

$

3,170

 

$

6,924

 

$

6,068

 

ICGCS

 

2,159

 

2,083

 

4,155

 

4,017

 

GNMS

 

966

 

839

 

1,843

 

1,587

 

Corporate & Other, including adjustments and eliminations

 

445

 

450

 

876

 

923

 

Total

 

$

7,130

 

$

6,542

 

$

13,798

 

$

12,595

 

 

 

 

 

 

 

 

 

 

 

Income (Loss) from continuing operations:

 

 

 

 

 

 

 

 

 

USCS

 

$

580

 

$

594

 

$

1,224

 

$

1,121

 

ICGCS

 

277

 

227

 

512

 

370

 

GNMS

 

266

 

200

 

502

 

366

 

Corporate & Other

 

(61

)

(49

)

(111

)

(9

)

Total

 

$

1,062

 

$

972

 

$

2,127

 

$

1,848

 

 

 

10



 

AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

8.              Restructuring Charges

 

During the three months ended June 30, 2007, the Company recorded restructuring charges related to the Company’s corporate travel and prepaid services businesses. During the six months ended June 30, 2007, the Company recorded restructuring charges related to the Company’s technology, prepaid services, and corporate travel areas. The charges related to severance obligations are included in human resources. Other exit costs are included in occupancy and equipment, professional services, and other expenses in the Company’s Consolidated Statements of Income. Cash payments related to remaining restructuring liabilities are expected to be completed by the end of the fourth quarter of 2009, except for certain lease obligations which will continue until their expiration in 2012.

 

The following table summarizes by category the Company’s restructuring charge activity for each of the Company’s reportable operating segments:

Six Months Ended June 30, 2007

 

 

 

Liability balance at
 December 31, 2006

 

Restructuring charges,net of
reversals

 

Cash paid

 

Other-non-cash(b)

 

Liability balance at
June 30, 2007

 

(Millions)

 

  Severance

 

Other

 

Total

 

  Severance(a)

 

Other

 

Total

 

  Severance

 

Other

 

Total

 

 Severance

 

Other

 

Total

 

Severance

 

Other

 

Total

 

USCS

 

$

16

 

$

 

$

16

 

$

8

 

$

5

 

$

13

 

$

(4

)

$

 

$

(4

)

$

 

$

(5

)

$

(5

)

$

20

 

$

 

$

20

 

ICGCS

 

40

 

4

 

44

 

13

 

 

13

 

(19

)

(1

)

(20

)

 

 

 

34

 

3

 

37

 

GNMS

 

7

 

 

7

 

2

 

1

 

3

 

(2

)

 

(2

)

 

 

 

7

 

1

 

8

 

Corporate & Other

 

26

 

 

26

 

(4

)

7

 

3

 

(7

)

 

(7

)

(1

)

(2

)

(3

)

14

 

5

 

19

 

Total

 

$

89

 

$

4

 

$

93

 

$

19

 

$

13

 

$

32

 

$

(32

)

$

(1

)

$

(33

)

$

(1

)

$

(7

)

$

(8

)

$

75

 

$

9

 

$

84

 

 

Three Months Ended June 30, 2007

 

 

 

Liability balance at
March 31, 2007

 

Restructuring charges,  net of
reversals

 

Cash paid

 

Other-non-cash

 

Liability balance at
June 30, 2007

 

(Millions)

 

Severance

 

Other

 

Total

 

Severance(a)

 

Other

 

Total

 

Severance

 

Other

 

Total

 

Severance

 

Other

 

Total

 

Severance

 

Other

 

Total

 

USCS

 

$

24

 

$

 

$

24

 

$

 

$

 

$

 

$

(4

)

$

 

$

(4

)

$

 

$

 

$

 

$

20

 

$

 

$

20

 

ICGCS

 

38

 

3

 

41

 

6

 

 

6

 

(10

)

 

(10

)

 

 

 

34

 

3

 

37

 

GNMS

 

9

 

 

9

 

 

1

 

1

 

(2

)

 

(2

)

 

 

 

7

 

1

 

8

 

Corporate & Other

 

20

 

2

 

22

 

(3

)

3

 

 

(3

)

 

(3

)

 

 

 

14

 

5

 

19

 

Total

 

$

91

 

$

5

 

$

96

 

$

3

 

$

4

 

$

7

 

$

(19

)

$

 

$

(19

)

$

 

$

 

$

 

$

75

 

$

9

 

$

84

 

 


(a)         Reversals of $4 million in Corporate & Other were recorded for the three months ended June 30, 2007, and $2 million in USCS, $2 million in ICGCS, $1 million in GNMS and $6 million in Corporate & Other were recorded for the six months ended June 30, 2007, primarily due to a greater portion of impacted employees finding other opportunities with the Company than was originally anticipated.

 

(b)   Represents primarily asset write-downs.

 

The Company makes decisions on restructuring initiatives as the economic environment dictates. As of June 30, 2007, the total expenses to be incurred for previously approved restructuring activities that were in-progress are not expected to be materially different than the cumulative expenses incurred to date for these programs. The amounts in the table below relate to the in-progress restructuring programs initiated at various dates between the fourth quarter of 2004 and the second quarter of 2007.

 

Cumulative Restructuring Expense Incurred To Date on In-Progress Restructuring Programs

 

(Millions)

 

Severance

 

Other

 

Total

 

USCS

 

$

25

 

$

4

 

$

29

 

ICGCS

 

164

 

31

 

195

 

GNMS

 

10

 

1

 

11

 

Corporate & Other

 

100

 

20

 

120

 

Total

 

$

299

 

$

56

 

$

355

 

 

 

11



 

AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

9.              Income Taxes

 

The Company adopted FASB Financial Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (FIN 48) as of January 1, 2007. The initial adoption of FIN 48 resulted in a charge of approximately $127 million to the January 1, 2007 balance of retained earnings.

 

As of January 1, 2007, and including the impact of the initial adoption charge to retained earnings, the Company’s total gross benefits for tax positions that have not been recognized through the financial statements were approximately $1.1 billion, exclusive of interest and penalties described below. Included in the $1.1 billion are approximately $636 million of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate in a future period. There have been no significant changes in the Company’s unrecognized tax benefits as of June 30, 2007.

 

The Company’s continuing practice is to recognize interest and penalties relating to unrecognized tax benefits in the income tax provision, which therefore has an impact on the effective tax rate. As of January 1, 2007, the Company had $222 million ($153 million after-tax) accrued for the payment of interest and penalties. There have been no significant changes in the Company’s accrual for the payment of interest and penalties as of June 30, 2007.

 

The Company is under continuous examination by the Internal Revenue Service (IRS) and tax authorities in other countries and states in which the Company has significant business operations. The tax years under examination and open for examination vary by jurisdiction. The Company is currently under examination by the IRS for the years 1997 – 2004.

 

Given the inherent complexities of the business and that the Company is subject to taxation in a substantial number of jurisdictions, the Company routinely assesses the likelihood of additional assessments in each of the taxing jurisdictions and has established a liability for unrecognized tax benefits that management believes to be adequate. Once established, unrecognized tax benefits are adjusted if more accurate information is available, or a change in circumstance, or an event occurs necessitating a change to the liability. It is reasonably possible that the unrecognized tax benefits will significantly increase or decrease within the next twelve months. Due to the inherent complexities and the number of tax years currently under examination, it is not possible to quantify the impact such changes may have on the effective tax rate.

 

The following table summarizes the Company’s effective tax rate:

 

 

 

Three Months Ended
June 30, 2007(a)

 

Six Months Ended
June 30, 2007(a)

 

Full Year
2006

 

Effective tax rate

 

26%

 

30%

 

30%

 

 


(a) The effective tax rate for the three and six months ended June 30, 2007, reflected a $65 million tax benefit from the IRS related to the treatment of certain prior years’ card fee income. The impact of the tax benefit on the effective tax rate for the six months ended June 30, 2007, was partially offset by the income tax impact of the regulatory and legal exposure reserve established primarily at American Express Bank International.

 

12



 

AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

10.       Contingencies

 

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

 

11.       Subsequent Event

 

On August 6, 2007, American Express Bank International (AEBI), a subsidiary of American Express Bank Ltd.(AEBL), entered into a settlement with the Department of Justice (DOJ), the Federal Reserve, and the Financial Crimes Enforcement Network (FinCEN), relating to violations by AEBI of the anti-money laundering (AML) requirements of the Bank Secrecy Act. An additional finding by FinCEN that the Company’s wholly-owned subsidiary, American Express Travel Related Services Company, Inc. (TRS), violated the suspicious transaction reporting requirements of the Bank Secrecy Act was also settled. The total amount in settlement of these matters was $65 million (of which $5 million was attributable to the TRS activities) for which the Company was fully reserved as of June 30, 2007.

 

Also on August 6, 2007, AEBL entered into a Written Agreement with the New York State Banking Department, the primary regulator of AEBL, under which AEBL has agreed to implement certain enhancements and remedial measures to its AML compliance program. There is no monetary fine or penalty associated with this agreement.

 

The Company has also committed to its consolidated supervisor, the Office of Thrift Supervision, that it will complete its efforts to develop and implement an enterprise wide AML compliance program.

 

13



 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

American Express Company (the Company) is a leading global payments, network, and travel company. The Company offers a broad range of products and services including charge and credit cards; travel agency services; travel and business expense management products and services; network services and merchant acquisition and merchant processing for the Company’s network partners and proprietary payments businesses; lending products; point-of-sale and back-office products and services for merchants; magazine publishing; stored value products such as Travelers Cheques and gift cards; and international banking products. The Company’s various products and services are sold globally to diverse customer groups, including consumers, small businesses, mid-market companies, large corporations, and banking institutions. These products and services are sold through various channels including direct mail, on-line applications, targeted sales forces, and direct response advertising.

 

The Company generates revenue from a variety of sources including payment products, such as charge and credit cards, travel services, and stored value products, including Travelers Cheques. Charge and credit cards generate four types of revenue for the Company:

 

      Discount revenue, which is the Company’s largest revenue source, represents fees charged to merchants when cardmembers use their cards to purchase goods and services on the Company’s network;

 

                  Finance revenue, which is earned on outstanding balances related to the cardmember lending portfolio;

 

                  Card fees, which are earned for annual membership, and other commissions and fees such as foreign exchange conversion fees and card-related fees and assessments; and

 

                  Securitization income, net which reflects the net earnings related to cardmember loans financed through securitization activities.

 

In addition to funding and operating costs associated with these activities, other major expense categories are related to marketing and rewards programs that add new cardmembers and promote cardmember loyalty and spending, and provisions for anticipated cardmember credit and fraud losses.

 

The Company believes that its “spend-centric” business model (which focuses on generating revenues primarily by driving spending on its cards and secondarily by finance charges and fees) has significant competitive advantages. Average spending per cardmember, which is substantially higher than the Company’s competitors’, represents greater value to merchants in the form of loyal customers and higher sales. This gives the Company the ability overall to earn a premium discount rate and invest in greater value-added services for merchants and cardmembers. As a result of the higher revenues generated from higher spending, the Company has the flexibility to offer more attractive rewards and other incentives to cardmembers, which in turn create an incentive to spend more on their cards.

 

The Company creates shareholder value by focusing on the following elements:

 

                  Driving growth principally through organic opportunities and related business strategies, as well as joint ventures and selected acquisitions;

 

                  Delivering returns well in excess of the Company’s cost of capital; and

 

                  Distributing excess capital to shareholders through dividends and stock repurchases.

 

Overall, it is management’s priority to increase shareholder value over the moderate to long term by achieving the following long-term financial targets, on average and over time:

 

                  Revenues net of interest expense growth of at least 8 percent;

 

                  Earnings per share growth of 12 to 15 percent; and

 

                  Return on average equity (ROE) of 33 to 36 percent.

 

The relatively high ROE target reflects the success of the Company’s spend-centric business model and its effectiveness in capturing high spending consumer, small business, and corporate cardmembers.

 

14



 

Assuming the Company achieves its financial objectives noted above, it will seek to return to shareholders an average of 65 percent of capital generated, subject to business mix, acquisitions, and rating agency requirements.

 

As discussed in the Company’s Form 10-Q for the period ended March 31, 2007, the Travelers Cheque and Prepaid Services business and international banking businesses currently included in the Corporate & Other segment were previously included in the U.S. Card Services and International Card & Global Commercial Services segments, respectively, prior to the reportable operating segment modifications made effective in the first quarter of 2007. The financial data for all periods included herein reflect these modifications. For additional information regarding the nature of the Company’s discussions with the U.S. Securities and Exchange Commission (SEC), see “Item 1A. Risk Factors” and “Item 1B. Unresolved Staff Comments” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

 

During the second quarter of 2007, the Company announced organizational changes effective July 1, 2007, which reflect a reorganization of the Company into two distinct customer-focused groups: Global Consumer Group and Global Business-to-Business Group. The Company is reviewing the impact of these changes on its reportable operating segment disclosures, and expects financial disclosures to reflect these organizational changes in the third quarter of 2007.

 

Certain of the statements in this Form 10-Q report are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. See the “Forward-Looking Statements” section below.

 

15



 

American Express Company

Selected Statistical Information

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

(Billions, except percentages and where indicated)

 

2007

 

2006

 

2007

 

2006

 

Card billed business(a):

 

 

 

 

 

 

 

 

 

United States

 

$

115.7

 

$

102.5

 

$

221.1

 

$

195.4

 

Outside the United States

 

45.4

 

38.0

 

86.2

 

72.3

 

Total

 

$

161.1

 

$

140.5

 

$

307.3

 

$

267.7

 

Total cards-in-force (millions)(b):

 

 

 

 

 

 

 

 

 

United States

 

50.5

 

45.4

 

50.5

 

45.4

 

Outside the United States

 

31.7

 

29.0

 

31.7

 

29.0

 

Total

 

82.2

 

74.4

 

82.2

 

74.4

 

Basic cards-in-force (millions)(b):

 

 

 

 

 

 

 

 

 

United States

 

39.2

 

34.8

 

39.2

 

34.8

 

Outside the United States

 

27.0

 

24.1

 

27.0

 

24.1

 

Total

 

66.2

 

58.9

 

66.2

 

58.9

 

 

 

 

 

 

 

 

 

 

 

Average discount rate(c)

 

2.57

%

2.57

%

2.57

%

2.57

%

Average basic cardmember spending (dollars)(d)

 

$

3,049

 

$

2,821

 

$

5,868

 

$

5,437

 

Average fee per card (dollars)(d)

 

$

36

 

$

34

 

$

35

 

$

34

 

 


(a) Card billed business includes activities (including cash advances) related to proprietary cards, cards issued under network partnership agreements, and certain insurance fees charged on proprietary cards.

 

(b) Total cards-in-force represents the number of cards that are issued and outstanding. Proprietary basic consumer cards-in-force includes basic cards issued to the primary account owner and does not include additional supplemental cards issued on that account. Proprietary basic small business and corporate cards-in-force include basic and supplemental cards issued to employee cardmembers. Non-proprietary basic cards-in-force includes all cards that are issued and outstanding under network partnership agreements.

 

(c)  Computed as follows:  Discount revenue from all card spending (proprietary and Global Network Services) at merchants divided by all billed business (proprietary and Global Network Services) generating discount revenue at such merchants. Only merchants acquired by the Company are included in the computation.

 

(d) Average basic cardmember spending and average fee per card are computed from proprietary card activities only. Average fee per card is computed based on net card fees excluding the amortization of deferred direct acquisition costs.

 

16



 

Selected Statistical Information (continued)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

(Billions, except percentages and where indicated)

 

2007

 

2006

 

2007

 

2006

 

Worldwide cardmember receivables:

 

 

 

 

 

 

 

 

 

Total receivables

 

$

38.4

 

$

34.7

 

$

38.4

 

$

34.7

 

90 days past due as a % of total

 

2.7

%

2.8

%

2.7

%

2.8

%

Loss reserves (millions):

 

$

981

 

$

948

 

$

981

 

$

948

 

% of receivables

 

2.6

%

2.7

%

2.6

%

2.7

%

% of 90 days past due

 

95

%

98

%

95

%

98

%

Net loss ratio as a % of charge volume

 

0.24

%

0.24

%

0.23

%

0.21

%

Worldwide cardmember lending – owned basis(a):

 

 

 

 

 

 

 

 

 

Total loans

 

$

48.3

 

$

36.3

 

$

48.3

 

$

36.3

 

30 days past due loans as a % of total

 

2.8

%

2.7

%

2.8

%

2.7

%

Loss reserves (millions):

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

1,271

 

$

1,053

 

$

1,171

 

$

996

 

Provision

 

606

 

376

 

1,148

 

675

 

Net write offs

 

(473

)

(331

)

(912

)

(601

)

Other

 

13

 

(12

)

10

 

16

 

Ending balance

 

$

1,417

 

$

1,086

 

$

1,417

 

$

1,086

 

% of loans

 

2.9

%

3.0

%

2.9

%

3.0

%

% of past due

 

106

%

113

%

106

%

113

%

Average loans

 

$

45.6

 

$

35.2

 

$

44.3

 

$

34.0

 

Net write-off rate

 

4.1

%

3.8

%

4.1

%

3.5

%

Net finance revenue(b)/average loans

 

9.5

%

9.4

%

9.4

%

9.0

%

Worldwide cardmember lending – managed basis(c):

 

 

 

 

 

 

 

 

 

Total loans

 

$

68.6

 

$

56.5

 

$

68.6

 

$

56.5

 

30 days past due loans as a % of total

 

2.6

%

2.5

%

2.6

%

2.5

%

Loss reserves (millions):

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

1,787

 

$

1,554

 

$

1,622

 

$

1,469

 

Provision

 

780

 

478

 

1,577

 

871

 

Net write offs

 

(662

)

(474

)

(1,290

)

(878

)

Other

 

12

 

(12

)

8

 

84

 

Ending balance

 

$

1,917

 

$

1,546

 

$