American Express 2006 Annual Report Download - page 16

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The powerful combination of our card-issuing business and network partnerships fueled
industry-leading growth in cardmember spending and lending, and put the American
Express brand in the wallets of millions of new cardmembers. As we expanded our presence
worldwide, we also achieved strong fi nancial results. For the year:
• Income from continuing operations rose 16 percent to $3.7 billion
• Diluted earnings per share from continuing operations rose 18 percent to $3.01
• Revenues rose 13 percent to $27 billion
• Return on average equity (ROE) was 34.7 percent
These results met or exceeded all of our long-term fi nancial targets: earnings per share
growth of 12-15 percent, revenue growth of at least 8 percent and ROE of 33-36 percent,
on average and over time. That last target is quite a bit higher than it was a year ago.
In the fourth quarter, we raised our ROE range from 28-30 percent, refl ecting both our
performance since the spin-off and continued confi dence in our growth potential.
Net income of $3.7 billion was essentially level with year-ago results, which included
nine months of earnings from Ameriprise, the business we spun off to shareholders. We
believe that focusing on continuing operations
—
or the businesses that now comprise
American Express
—
provides a clearer view of our ongoing performance.
Total expenses rose 10 percent, primarily refl ecting higher costs for marketing, promo-
tions, rewards and cardmember services. We also had signifi cant growth in interest and
provision expense, with the latter primarily due to volume growth in our lending portfolio.
We continued to see excellent payback on the investments we have made in business-
building activities over the past few years. These efforts fueled momentum in key drivers
of revenue growth such as billed business, receivables and cards-in-force. At the same time,
our focus on reengineering, which produced more than $1 billion in benefi ts for the sixth
consecutive year, has increased the fl exibility and effi ciency of our organization overall.
SHAREHOLDER RETURNS
We know our job is to build value for our shareholders. In a strong year for the major
equity markets, American Express’ stock returned 19 percent to shareholders in 2006. Our
performance exceeded the S&P 500’s return of 15.8 percent and was in line with the S&P
Financial and Dow Jones Industrial indices. Cumulatively, over the past fi ve years, our
stock’s total return to shareholders has substantially exceeded these three key indices and
almost all of our peer companies.
This fi ve-year track record of superior returns corresponds with consistently strong
growth in earnings, revenue and return on equity over the same period. Our fi nancial per-
formance, 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;
letter to shareholders
[ 14 ]