American Express 2006 Annual Report Download - page 33

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2006 fi nancial review
american express company
For 2006 and 2005, the Company met or exceeded
management’s targets for earnings per share, revenue,
and ROE, illustrating the success of investments made
over the past few years. Reported ROE for 2006 was 35
percent. Reported ROE for 2005, including discontinued
operations (prior to disposal), was 25 percent, which
exceeded the Company’s target prior to the spin-off.
ACQUISITIONS AND DIVESTITURES
Effective December 31, 2006, the Company acquired
Harbor Payments, Inc. (Harbor Payments) for
approximately $150 million, which was paid primarily
in the Company’s common stock. Harbor Payments
is a technology provider that specializes in electronic
invoice and payment capabilities. The acquisition
is reflected in the International Card & Global
Commercial Services segment.
During the third quarter of 2006, the Company
completed the sale of its card and merchant-related
activities in Malaysia to Maybank, and its card and
merchant-related activities in Indonesia to Bank
Danamon, for combined proceeds of $94 million.
The transactions generated a gain of $33 million ($24
million after-tax), and are reported as a reduction to
other expenses in the Company’s continuing operations.
The gain is reported within the International Card &
Global Commercial Services segment.
On June 30, 2006, the Company completed the
sale of its card and merchant-related activities, and
international banking activities in Brazil to Banco
Bradesco S.A. (Bradesco), for approximately $470
million. The transaction generated a net after-tax
gain of $109 million. $144 million ($131 million
after-tax) of the gain relates to the card and merchant-
related activities sold and is reported as a reduction to
other operating expenses in the Company’s continuing
operations ($119 million in the International Card &
Global Commercial Services segment and $25 million
in the Global Network & Merchant Services segment).
A $22 million after-tax loss related to the sale of the
Company’s international banking activities to Bradesco
is reported in discontinued operations. These banking
activities previously were reflected in the International
Card & Global Commercial Ser vices segment. Financial
results for these operations, prior to the second quarter
of 2006, were not reclassified as discontinued operations
because such results are not material.
The Company will continue to maintain its presence
in the card and merchant-related businesses within
Malaysia, Indonesia, and Brazil through its Global
Network Services arrangements with acquirers.
On September 30, 2005, the Company completed
the spin-off of Ameriprise, formerly known as American
Express Financial Corporation, the Company’s
financial planning and financial services business. In
addition, during the third quarter of 2005, the Company
completed certain dispositions including the sale of its
tax, accounting, and consulting business, American
Express Tax and Business Services, Inc. (TBS). The
operating results and cash flows related to Ameriprise
and certain dispositions (including TBS) have been
reflected as discontinued operations in the Consolidated
Financial Statements.
SEGMENT REPORTING
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 . C a r d S e r v i c e s i s s u e s a w i d e r a n g e o f c a r d p r o d u c t s
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-
office products, services, and marketing programs and
also manages a global general-purpose charge and credit
card network, which includes both proprietary cards and
cards issued under network partnership agreements.