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rewarding relationships
american express company
2006 annual report

Table of contents

  • Page 1
    rewarding relationships american express company 2006 annual report

  • Page 2
    ...dividends declared per common share Book value per common share Average common shares outstanding for diluted earnings per common share Total assets Shareholders' equity Common share cash dividends declared Common share repurchases Return on average equity Number of employees # Denotes a variance of...

  • Page 3
    american express company Relationships are at the heart of our business. For 156 years, our commitment to personalized service has earned us a loyal following and made our brand one of the most respected in the world. Whether we're serving our customers, our partners, the merchants who accept our ...

  • Page 4
    ... for celebrities. Well, American Express truly made us feel like celebrities. The entire experience was top-notch. I'll never forget it." - Tony Cort Tony and Sheila Cort, American Express cardmembers who attended an Indy 300 car racing event offered through Membership Rewards Exclusives and AirTran...

  • Page 5
    ... rated among the very best in the industry. rewards that mean something American Express has the highestspending customers of any card issuer or payments network, and we don't take that for granted. To keep our cardmembers spending with us, we offer many cards and programs that let them earn points...

  • Page 6
    [4]

  • Page 7
    ...rst U.S. charge card exclusively for small businesses. Ever since, we've been adding innovative products and services developed to meet their unique needs. Through OPEN, we give our cardmembers greater spending power, valuable rewards and savings, ï¬,exible payment options, expense management tools...

  • Page 8
    ... popular offerings. Voted "Best Bank Rewards" program in Australia by Money magazine, the Altitude products target highspending frequent ï¬,iers. the network for high-spending customers In the world of payments, most players are either card issuers or networks. American Express is a global leader...

  • Page 9
    [7]

  • Page 10
    ... American Express cards, merchants open their doors to the most attractive customer base around. For example, in the U.S., spending per card on American Express is four to five times higher than Visa and MasterCard. But card acceptance is only a starting point. With our MERCHANTS Our direct...

  • Page 11
    [9]

  • Page 12
    [ 10 ]

  • Page 13
    ... which way to turn. We wanted these people to know that, as American Express customers, they had a local support team doing everything possible to help." Sandra Lopez, American Express Travel Services Network employee in Cancun, Mexico. After Hurricane Wilma swept across Mexico's Yucatan Peninsula...

  • Page 14
    [ 12 ] Kenneth I. Chenault, Chairman and Chief Executive Officer

  • Page 15
    ... of any rewarding relationship. At American Express, we made some important commitments to our shareholders over the past year. We pledged that a sharper focus on our high-performing payments businesses following the Ameriprise spin-off would produce strong growth, generate higher returns and...

  • Page 16
    ... performance, in turn, results from our focus on: • earning the loyalty of high-spending customers by offering products, rewards and services that provide premium value; • capitalizing on competitive advantages such as our unique spend-centric business model and the American Express brand;

  • Page 17
    ... and increase our ï¬,exibility; and • investing in our future and identifying the best opportunities across a range of highperforming businesses. We are committed to managing our shareholders' resources wisely. As our recent performance demonstrates, our businesses generate high returns on equity...

  • Page 18
    ... from a year ago. Provisions for losses rose due to increased loan volumes globally and higher loss rates in some international markets, most notably Taiwan. This was partially offset by lower bankruptcy-related charge-offs and excellent credit quality in the United States. card billed business (in...

  • Page 19
    ...In international markets, consumer and small-business spending rose a combined 11 percent, assuming no changes in foreign exchange rates. During the year, we sold our card-issuing operations in Brazil, Malaysia and Indonesia to Global Network Services (GNS) partners. As a result, billed business for...

  • Page 20
    ... more opportunities to save on purchases, earn extra points and receive priority access to events that interest them is another key dimension of the rewards we offer. Because of our sophisticated information management and marketing capabilities, it's also something that American Express can do...

  • Page 21
    ...free access to airline club lounges for both the cardmember and a travel partner. The changes helped to drive double-digit increases in spending on Platinum cards in these markets. • We also took steps to further distinguish American Express as the payments company that offers personalized service...

  • Page 22
    ... issued Blue and Clear cards and the Starwood Preferred Guest Credit Card. On the other end of the scale, we are also focused on increasing card acceptance for large-ticket purchases and recurring charges generally not put on plastic. One example is the pilot we launched last September with New York...

  • Page 23
    ... still generate paper invoices and pay bills by check, this is clearly a large opportunity for us. We began to market S2S to companies in the United States in early 2007 and plan to expand globally. GLOBAL NET WORK SERVICES [ 21 ] As our proprietary card-issuing business grew stronger, our network...

  • Page 24
    letter to shareholders on the network Global Network Services continued its rapid expansion in 2006, signing 11 new partners to issue cards on our network. GNS has nearly 110 partners in 120 countries. Many of these partners introduced new American Express-branded cards during the year, including ...

  • Page 25
    ... particularly strong year, with sales rising 27 percent. During 2006, we enhanced marketing programs with premium air, cruise and hotel partners. We also continued to use offers and features tied to our Membership Rewards program to drive traffic to our Consumer Travel Web site. This helped lead to...

  • Page 26
    ... to service and ability to provide more value, convenience and opportunities for our high-spending customers. Small-Business Spending. American Express was one of the first card companies to develop products and services specifically for small businesses. At the end of 2005, our share of spending...

  • Page 27
    letter to shareholders national business. Middle-market customers are a particularly high-spending, profitable group for American Express. Network Partnerships. Given the strong foundation we have established with our network of bank partnerships outside the United States in the past decade, along...

  • Page 28
    ... a business model focused primarily on cardmember spending. We are the only company with scale in all key areas of payments - as a card issuer, network, transaction processor and merchant acquirer. We are the largest global card issuer by spend volume and the fourth-largest card lender in the United...

  • Page 29
    ... American Express provides unique value to both our merchants and cardmembers. Through our closed-loop network and marketing expertise, we are able to match the right offers and experiences to the right customers at the right time. These targeted offers benefit our cardmembers and build business...

  • Page 30
    ...time and resources to philanthropy, conducting our business with integrity and recognizing our responsibility to society. And we are committed to generating value for our shareholders. With our strong competitive advantages, diverse businesses and wide-ranging opportunities, American Express is well...

  • Page 31
    ... FINANCIAL REPORTING REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS CONSOLIDATED STATEMENTS OF INCOME CONSOLIDATED BALANCE SHEETS CONSOLIDATED STATEMENTS OF CASH FLOWS CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED FIVE-YEAR SUMMARY...

  • Page 32
    ... 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...

  • Page 33
    ... business, which includes signing merchants to accept cards as well as processing and settling card transactions for those merchants. This segment also offers merchants point-of-sale and backoffice products, services, and marketing programs and also manages a global general-purpose charge and credit...

  • Page 34
    ... dated April 5, 2006. In addition, beginning prospectively as of July 1, 2006, certain card acquisition-related costs were reclassified from other expense to a reduction in net card fees. Certain of the statements in this Annual Report are forward-looking statements within the meaning of the Private...

  • Page 35
    ... as the level of coverage of past-due accounts, as well as leading economic and market indicators, such as the unemployment rate, the consumer confidence index, the purchasing manager's index, bankruptcy filings and the legal and regulatory environment. To the extent historical credit experience is...

  • Page 36
    ... factors. The balance sheet reserve for unredeemed points is impacted over time by enrollment levels, the number of points earned and redeemed, the weighted-average cost per point, redemption choices made by cardmembers, reward offerings by partners and other Membership Rewards program changes. The...

  • Page 37
    ... fair value of the Company's subordinated retained interests, including an interest-only strip, and gains or losses recorded at the time of sale. Estimates and assumptions are generally based on projections of finance charges and fees paid related to the securitized assets, expected credit losses...

  • Page 38
    ...billed business (proprietary and Global Network Services) generating discount revenue at such merchants. Only merchants acquired by the Company are included in the computation. (c) Average fee per card is computed based on net card fees excluding the amortization of deferred direct acquisition costs...

  • Page 39
    ... from the sale of an investment in Egyptian American Bank (EAB); • $68 million ($42 million after-tax) of gains related to a rebalancing program in the fourth quarter of 2006 to better align the maturity profile of the Travelers Cheque and Gift Card investment portfolio with its business liquidity...

  • Page 40
    ... offset by a lower average discount rate, relatively faster growth in billed business related to Global Network Services (GNS), and higher cash-back rewards costs. Selective repricing initiatives, continued changes in the mix of business and volume-related pricing discounts will likely continue to...

  • Page 41
    ... and Global Network Services reflected continued robust increases in the number of new cards added to the Company's franchise as well as continued solid average customer retention levels in 2006. In the U.S. and non-U.S. businesses, 5.1 million and 1.9 million cards were added in 2006, respectively...

  • Page 42
    ... global brand advertising campaign and continued focus on business-building initiatives. The growth in rewards costs is attributed to volume growth, a higher redemption rate and strong cardmember loyalty program participation. Human resources expenses increased 5 percent to $5.1 billion for 2006...

  • Page 43
    ... in net card fees, and the 2006 gains on the sales of the Company's card and merchant-related activities in Brazil, Malaysia, and Indonesia as well as the investment in EAB. The decrease was partially offset by the September 11, 2001-related insurance settlement in 2005 and higher volume and...

  • Page 44
    ... repurchase program to return equity capital in excess of business needs to shareholders. These share repurchases both offset the issuance of new shares as part of employee compensation plans and reduce shares outstanding. The Company repurchases its common shares primarily by open market purchases.

  • Page 45
    ... and sale of U.S. receivables and loans generated in the ordinary course of the Company's card businesses. In 2006 and 2005, the Company had uninterrupted access to the money and capital markets to fund its business operations. The Company's debt offerings are placed either directly to investors, as...

  • Page 46
    ... under bank credit facilities and term liquidity portfolio investment securities, Credco's total back-up liquidity coverage of net short-term debt was 212 percent at December 31, 2006. Centurion Bank and FSB raise short-term debt through various instruments. Bank notes issued and Fed Funds purchased...

  • Page 47
    ... assets on the Company's Consolidated Balance Sheets. The related securities issued to third-party investors are reported as long-term debt on the Company's Consolidated Balance Sheets. As of December 31, 2006 and 2005, the [ 45 ] The Company actively manages the risk of liquidity and cost of funds...

  • Page 48
    ... the process of managing and servicing the securitized loans through its subsidiary, TRS, for which it earns a fee. Any billed finance charges related to the transferred cardmember loans are reported as other receivables on the Company's Consolidated Balance Sheets. As of December 31, 2006 and...

  • Page 49
    ... in business segments, cost and availability of alternative liquidity sources, and credit rating agency considerations. The Company has developed a contingent funding plan that enables it to meet its daily funding obligations when access to unsecured funds in the debt capital markets is impaired...

  • Page 50
    ...'s credit rating. Contingent Securitization Capacity A key source in the Company's contingent funding plan is asset securitization. Management expects that $20.6 billion of additional consumer loans, commercial card loans, small business loans and cardmember receivables could be sold to investors...

  • Page 51
    ... are associated with cardmember services to enhance the value of owning an American Express card. At December 31, 2006, the Company had guarantees totaling approximately $75 billion related to cardmember protection plans, as well as other guarantees in the ordinary course of business that are within...

  • Page 52
    ...business unit managers remain jointly accountable for the outcome of risk-return decisions within these established limits. GOVERNANCE The ERMC is chaired by the Company's Chief Risk Officer. Given the key role of credit risk in the Company business model, the Chief Risk Officer supervises officers...

  • Page 53
    ... obligors. MARKET RISK MANAGEMENT PROCESS Market risk is the risk to earnings or value resulting from movements in market prices. The Company's nontrading related market risk consists of: • Interest rate risk in its card, insurance, and certificate businesses; and • Foreign exchange risk in...

  • Page 54
    ... December 31, 2006. In conjunction with its international banking operations, the Company uses derivative financial instruments to manage market risk related to specific interest rate, foreign exchange and price risk exposures arising from deposits, loans and debt and equity securities holdings, and...

  • Page 55
    ... the Global Network & Merchant Services segment, discount revenue reflects the network and merchant component of the overall discount rate. Net finance charge revenue and net card fees are directly attributable to the segment in which they are reported. EXPENSES Marketing, promotion, rewards and...

  • Page 56
    ... cardmember spending (dollars) U.S. Consumer Travel Travel sales Travel commissions and fees/sales Worldwide Travelers Cheque and prepaid products: Sales Average outstanding Average investments Investment yield (a) Tax equivalent yield - managed (a) Total segment assets Segment capital Return on...

  • Page 57
    ... lending net finance charge revenue, and as discussed previously, greater securitization income, net. Discount revenue, net card fees and other of $10.0 billion in 2006, rose 12 percent from 2005, largely due to higher billed business volumes and the Travelers Cheque and Gift Card investment...

  • Page 58
    ... MANAGED BASIS PRESENTATION Years Ended December 31, (Millions) 2006 2005 2004 Discount revenue, net card fees and other: Reported for the period (GAAP) Securitization adjustments (a) Tax adjustments (b) Managed discount revenue, net card fees and other Net finance charge revenue: Reported...

  • Page 59
    ... business volumes, and also, the Travelers Cheque and Gift Card investment portfolio gain in 2006 discussed previously. Net finance charge revenue increased 16 percent to $4.4 billion in 2006, primarily due to 16 percent growth in the average managed lending balances and a higher net portfolio yield...

  • Page 60
    ... Company's international funding strategy in 2004. GLOBAL NETWORK & MERCHANT SERVICES SELECTED INCOME STATEMENT DATA Years Ended December 31, (Millions) 2006 2005 2004 Net revenues: Discount revenue, fees and other Expenses: Marketing and promotion Provision (benefit) for losses Human resources...

  • Page 61
    ...than in 2004. In 2006, Global Network & Merchant Services' net revenues increased 15 percent to $3.2 billion reflecting growth in merchant-related fees, primarily generated from the 16 percent increase in global card billed business as well as higher network partner-related revenues. Net revenues of...

  • Page 62
    ...securities to pay the purchase price for the underlying receivables or loans. Average discount rate - Represents 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...

  • Page 63
    ... on their American Express charge cards as well as any cardrelated fees. Charge cards - Represents cards that carry no pre-set spending limits and are primarily designed as a method of payment and not as a means of financing purchases. Cardmembers generally must pay the full amount billed each month...

  • Page 64
    ... of travel transaction volume for airline, hotel, car rental, and other travel arrangements made for consumers and corporate clients. The Company earns revenue on these transactions by charging a transaction or management fee. FORWARD-LOOKING STATEMENTS [ 62 ] This report includes forward-looking...

  • Page 65
    ... 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...

  • Page 66
    [ 64 ] THIS PAGE INTENTIONALLY LEF T BLANK

  • Page 67
    ... of compliance with the policies or procedures may deteriorate. The Company's management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2006. In making this assessment, the Company's management used the criteria set forth by the Committee...

  • Page 68
    ... of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below. Consolidated financial statements In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of shareholders' equity and of...

  • Page 69
    ...and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control...

  • Page 70
    ...public accounting firm REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Shareholders of American Express Company We have audited the accompanying consolidated statements of income, shareholders' equity, and cash flows of American Express Company for the year ended...

  • Page 71
    THIS PAGE INTENTIONALLY LEF T BLANK [ 69 ]

  • Page 72
    ... lending finance charge revenue, net of interest Net card fees Travel commissions and fees Other commissions and fees Securitization income, net Other investment and interest income, net of interest Other Total Expenses Marketing, promotion, rewards and cardmember services Human resources Provisions...

  • Page 73
    ...2005, $37 Land, buildings and equipment - at cost, less accumulated depreciation: 2006, $3,169; 2005, $2,868 Other assets Total assets Liabilities and Shareholders' Equity Customers' deposits Travelers Cheques outstanding Accounts payable Investment certificate reserves Short-term debt (Note 8) Long...

  • Page 74
    ... payments on debt Issuance of American Express common shares and other Repurchase of American Express common shares Dividends paid Net cash provided by financing activities attributable to discontinued operations Net cash provided by financing activities Effect of exchange rate changes on cash Net...

  • Page 75
    consolidated statements of shareholders' equity american express company Three Years Ended December 31, 2006 (Millions, except per share amounts) Total Common Shares Accumulated Additional Other Paid-in Comprehensive Capital Income/(Loss) Retained Earnings Balances at December 31, 2003 ...

  • Page 76
    ... 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; stored value products such as Travelers Cheques and gift cards; travel agency services; travel and business...

  • Page 77
    ... a reduction in net card fees. FOREIGN CURRENCY NET REVENUES The Company generates revenue from a variety of sources including global payments, such as charge and credit cards, travel services and investments funded by the sale of stored value products, such as Travelers Cheques. Discount revenue...

  • Page 78
    notes to consolidated financial statements american express company revenues are recognized at the time a ticket is purchased. Other travel suppliers that pay commissions on hotels and car rentals generally are not under firm contractual agreements, and, therefore, revenue is not recognized until ...

  • Page 79
    notes to consolidated financial statements american express company Based Compensation" (SFAS No. 123). The Company recognizes the cost of these awards on a straight-line basis over their vesting periods. The following table illustrates the effect on net income and earnings per common share (EPS) ...

  • Page 80
    ... are recorded at the time a cardmember enters into a point-of-sale transaction with a merchant or when a charge card customer enters into an extended payment arrangement. Cardmember loans are presented on the Consolidated Balance Sheets net of reserves for cardmember losses, discussed below, and...

  • Page 81
    ... Rewards program allows enrolled cardmembers to earn points that can be redeemed for a broad range of rewards, including travel, entertainment, retail certificates, and merchandise. The Company establishes balance sheet reserves to cover the cost of future reward redemptions for points earned...

  • Page 82
    ...of program enrollment, and card spend level. The weighted-average cost per point is affected by the mix of rewards redeemed. The Company continually evaluates its reserve methodology and assumptions based on developments in redemption patterns, cost per point redeemed, and other factors. During 2006...

  • Page 83
    ... assets will not be realized. The Company does not provide for federal income taxes on foreign earnings intended to be permanently reinvested outside the United States. The Company is under continuous examination by the Internal Revenue Service (IRS) and tax authorities in other countries and states...

  • Page 84
    ... to consolidated financial statements american express company [ 82 ] of $199 million, related to its defined benefit and other postretirement benefit plans. The Company currently uses a September 30 measurement date. Effective for years ending after December 15, 2008, the measurement date for...

  • Page 85
    ... the years ended December 31 were: (Millions) 2006 2005 2004 On June 30, 2006, the Company completed the sale of its card and merchant-related activities and international banking activities in Brazil for approximately $470 million. The international banking portion of the transaction generated...

  • Page 86
    ... express company AVAILABLE-FOR-SALE INVESTMENTS The following is a summary of investments classified as Available-for-Sale at December 31: 2006 (Millions) Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Cost 2005 Gross Unrealized Gains Gross Unrealized Losses Fair Value State...

  • Page 87
    ... of investments classified as Available-for-Sale by maturity as of December 31, 2006: (Millions) Cost Fair Value [ 85 ] Due within 1 year Due after 1 year through 5 years Due after 5 years through 10 years Due after 10 years Mortgage and other asset-backed securities Equity securities Total...

  • Page 88
    ... program in the fourth quarter of 2006 to better align the maturity profile of the Travelers Cheque and Gift Card investment portfolio with its business liquidity needs. The table below includes purchases, sales and maturities of investments classified as Available-for-Sale for the years ended...

  • Page 89
    ... Cardmember activity, net Lending Trust assets, December 31 2006 2005 $28,854 $24,720 5,932 3,862 (202) 272 $34,584 $28,854 The subordinated securities are accounted for at fair value as Available-for-Sale investment securities and are reported in investments on the Company's Consolidated Balance...

  • Page 90
    ... of credit reserves upon sale is reported as a reduction of provision for losses from cardmember lending. The Company retains servicing responsibilities for the transferred cardmember loans through its subsidiary, American Express Travel Related Services Company, Inc., and earns a related fee. No...

  • Page 91
    ... entity, the American Express Issuance Trust (the Charge Trust). The cardmember receivables securitized through this entity are not accounted for as sold and the securities issued by this entity to third-party investors are reported as long-term debt on the Company's Consolidated Balance Sheets. The...

  • Page 92
    ... consolidated financial statements american express company NOTE 7 GOODWILL AND OTHER INTANGIBLE ASSETS GOODWILL The changes in the carrying amount of goodwill reported in the Company's reportable operating segments were as follows: International Card & Global Commercial Services Global Network...

  • Page 93
    ..., except in the case of (1) prior redemption or (2) default related to the debentures. (d) American Express Travel Related Services Company, Inc. fixed and floating rate senior notes were issued by the Travel Related Services Parent Company. (e) These balances include $2 billion and $1 billion notes...

  • Page 94
    ... levels by rating agencies. Aggregate annual maturities on long-term debt obligations (based on final maturity dates) at December 31, 2006, are as follows: (Millions) [ 92 ] American Express Company (Parent Company only) American Express Travel Related Services Company, Inc. American Express...

  • Page 95
    ... Company has a share repurchase program to return equity capital in excess of business needs to shareholders. The share repurchases both offset the issuance of new shares as part of employee compensation plans and reduce the number of shares outstanding. In May 2006, the Company's Board of Directors...

  • Page 96
    ...primarily interest rate swaps, to manage interest rate risk related to the charge card business. These swaps are used to achieve a targeted mix of fixed and floating rate funding, as well as to protect the Company from interest rate risk by hedging existing long-term variable-rate debt, the rollover...

  • Page 97
    ... Company no longer hedges the fair value changes related to callable term customer deposits because the term certificate of deposit was modified and hedge accounting is no longer deemed applicable to prospective transactions. NET INVESTMENT HEDGES funding costs related to the credit card business...

  • Page 98
    ... on the Company's Consolidated Balance Sheets. (c) Includes Credit Card Registry, Merchandise Protection, Account Protection, Merchant Protection and Baggage Protection. The Company generally has no collateral or other recourse provisions related to these guarantees. (d) Includes contingent...

  • Page 99
    ... credit deterioration, fair values are based on estimates of collateral values. LONG-TERM DEBT [ 97 ] For variable-rate long-term debt that reprices within one year, fair value approximates carrying value. For other long-term debt, fair value is estimated using either quoted market prices...

  • Page 100
    ... to the credit exposure related to any unused tickets. There has been some speculation that there will be consolidation in the airline industry, both in the United States and internationally. While the Company would not expect its merchant relationships to change in the event of consolidation, it is...

  • Page 101
    ... be adversely impacted. American Express' Delta SkyMiles Credit Card co-brand portfolio accounts for less than 10 percent of the Company's worldwide billed business and less than 15 percent of worldwide managed lending receivables. NOTE 15 STOCK PLANS STOCK OPTION AND AWARD PROGRAMS of grant and...

  • Page 102
    ... determined by an employee's age, years of service, and compensation as defined by the Plan (primarily base pay, certain incentive pay and commissions, shift differential, and overtime). Employees' balances are also credited daily with interest at a fixed-rate that is updated each January 1 and...

  • Page 103
    ... prior service cost related to the plans. See the table below for further information. Fair value of plan assets, October 1 prior year Actual return on plan assets Employer contributions Benefits paid Settlements Foreign currency exchange rate changes Fair value of plan assets at September...

  • Page 104
    ...weighted average assumptions used to determine net periodic benefit cost were: 2006 2005 2004 Discount rates 5.1% 5.5% 5.7% Rates of increase in compensation levels 4.2% 4.0% 3.9% Expected long-term rates of return on assets 7.8% 7.8% 7.8% The Company assumes a long-term rate of return on assets on...

  • Page 105
    ... the current market value of a portfolio of high-quality zero coupon bonds whose maturity dates and amounts match the timing and amount of expected future benefit payments. Asset Allocation The asset allocation for the Company's pension plans at September 30, 2006 and 2005, and the target allocation...

  • Page 106
    ...the funded status of $376 million, less fourth quarter contributions of $7 million, is reflected in the December 31, 2006 Consolidated Balance Sheet. Reconciliation of Accrued Benefit Cost and Total Amount Recognized (Millions) Increase (Decrease) on benefits earned and interest cost for U.S. plans...

  • Page 107
    ... from stock option exercises which are recorded in additional paid-in capital totaled $128 million, $234 million, and $158 million for the years ended December 31, 2006, 2005, and 2004, respectively. Comprehensive income in the Consolidated Statements of Shareholders' Equity is presented net of...

  • Page 108
    ... business cards outside the U.S., offers global corporate payment and travel-related products and services, and provides international banking services through American Express Bank Ltd. Global Network & Merchant Services operates a global merchant services business, which includes signing merchants...

  • Page 109
    ... for each of the years then ended. (Millions, except where indicated) U.S. Card Services International Card & Global Global Network & Commercial Merchant Corporate Services Services & Other Consolidated 2006 Net revenues Cardmember lending finance charge revenue, net of interest Interest expense...

  • Page 110
    ...statements american express company Net Revenues The Company allocates discount revenue and certain other revenues among segments using a transfer pricing methodology. Segments earn discount revenue based on the volume of merchant business generated by cardmembers. Within the U.S. Card Services and...

  • Page 111
    ..., relating to consolidation and site closures in the Company's business travel and international operations, and relocation of certain functions in the Company's finance and technologies operations. Charges related to severance obligations are included in human resources. Other exit costs are...

  • Page 112
    ... Company's reportable operating segments (U.S. Card Services (USCS), International Card & Global Commercial Services (ICGCS), and Global Network & Merchant Services (GNMS)). Liability balance at December 31, 2005 (Millions) 2006 Restructuring charges, net of reversals Cash paid during 2006 Other...

  • Page 113
    ... effect of accounting change Net income Return on average equity (b) Balance Sheet Cash and cash equivalents Accounts receivable and accrued interest, net Investments Loans, net Assets of discontinued operations Total assets Customers' deposits Travelers Cheques outstanding Short-term debt Long-term...

  • Page 114
    ...Kelly, Jr. Group President Consumer, Small Business and Merchant Services CORPORATE EXECUTIVES L. Kevin Cox Executive Vice President Human Resources John D. Hayes Executive Vice President Global Advertising and Brand Management and Chief Marketing Officer Daniel T. Henry Executive Vice President and...

  • Page 115
    ... New York Stock Exchange (Symbol: AXP) INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM PricewaterhouseCoopers LLP 300 Madison Avenue New York, New York 10017-6204 ANNUAL MEETING The Annual Meeting of Shareholders of American Express Company will be held at the company's New York City headquarters...

  • Page 116
    american express company 200 Vesey Street New York, NY 10285 212.640.2000 www.americanexpress.com