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[ 106 ]
notes to consolidated fi nancial statements
american express company
The table above excludes 2005 activity associated with
discontinued operations. Income tax (benefit) provision
amounts in 2005 on net unrealized securities gains,
net unrealized derivative losses and foreign currency
translation adjustments included in accumulated
other comprehensive loss associated with discontinued
operations were $(218) million, $15 million, and $(8)
million, respectively.
NOTE 18 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,
RSAs, and other financial instruments that may be
converted into common shares. The computations of
basic and diluted EPS for the years ended December 31
are as follows:
(Millions, except per share amounts) 2006 2005 2004
Numerator:
Income from continuing
operations $3,729 $3,221 $2,686
(Loss) Income from discontinued
operations, net of tax (22) 513 830
Cumulative effect of accounting
change, net of tax —— (71)
Net income $3,707 $3,734 $3,445
Denominator:
Basic: Weighted-average shares
outstanding during the period 1,212 1,233 1,259
Add: Dilutive effect of stock
options, restricted stock awards
and other dilutive securities 26 25 26
Diluted 1,238 1,258 1,285
Basic EPS:
Income from continuing
operations $ 3.08 $ 2.61 $ 2.13
(Loss) Income from discontinued
operations (0.02) 0.42 0.66
Cumulative effect of accounting
change, net of tax —— (0.05)
Net income $ 3.06 $ 3.03 $ 2.74
Diluted EPS:
Income from continuing
operations $ 3.01 $ 2.56 $ 2.09
(Loss) Income from discontinued
operations (0.02) 0.41 0.65
Cumulative effect of accounting
change, net of tax —— (0.06)
Net income $ 2.99 $ 2.97 $ 2.68
For the years ended December 31, 2006, 2005, and 2004,
the dilutive effect of unexercised stock options excludes 6
million, 14 million, and 13 million options, respectively,
from the computation of EPS because inclusion of the
options would have been anti-dilutive.
The Subordinated Debentures, discussed in Note 8,
will not affect the EPS computation unless the Company
fails to achieve specified performance measures
related to the Company’s tangible common equity and
consolidated net income. The Company will reflect the
additional common shares in the EPS computation only
in the event the Company fails to achieve the specified
performance measures, which the Company believes
is unlikely.
NOTE 19 REPORTABLE OPERATING
SEGMENTS AND GEOGRAPHIC
OPERATIONS
REPORTABLE OPERATING SEGMENTS
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, International Card &
Global Commercial Services, and Global Network
& Merchant Services. The Company considers a
combination of factors when evaluating the composition
of its reportable operating segments and the aggregation
of operating segments with similar attributes (in all
material respects), including economic characteristics,
products and services offered, classes of customers,
product distribution channels, geographic considerations
(primarily U.S. versus international), and regulatory
environment considerations.
U.S. Card Services issues a wide range of card products
and services to consumers and small businesses in the
U.S., provides consumer travel services to cardmembers
and other consumers, and also issues Travelers Cheques
and other prepaid products on a global basis.
International Card & Global Commercial Services
issues proprietary consumer and small 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 to accept cards as well as processing
and settling card transactions for those merchants. This
segment also offers merchants point-of-sale and back-