American Express 2007 Annual Report Download - page 44

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[ 42 ]
2007 FINANCIAL REVIEW
AMERICAN EXPRESS COMPANY
During 2007, the Company met its ROE target. In keeping
with the Company’s objectives, regarding the return of excess
capital to shareholders, the Board of Directors of the Company
approved a 20 percent increase in the quarterly dividend on the
Company’s common stock from $0.15 to $0.18 per share, paid
February 8, 2008, to shareholders of record on January 4, 2008.
During 2007, through dividends and share repurchases, the
Company returned approximately 88 percent of total capital
generated to shareholders in the form of $740 million in
dividends and $3.6 billion of share repurchases. The Company
was able to return a high percentage of its earnings and capital
generated to shareholders during 2007 due in part to its balance
sheet management activities that seek to optimize the level of
shareholders’ equity required to support its growth.
The Company maintains flexibility to shift capital across
its businesses as appropriate. For example, the Company may
infuse additional capital into subsidiaries to maintain capital
at targeted levels, considering debt ratings and regulatory
requirements. These infused amounts can affect both the capital
and liquidity levels for American Express’ parent company
(Parent Company). The Company maintains discretion to
manage these effects, by issuing debt and reducing projected
common share buybacks. Additionally, the Company may
transfer short-term funds within the Company to meet liquidity
needs, subject to and in compliance with various contractual
and regulatory constraints.
SHARE REPURCHASES
The Company has a share 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.
Approximately 71 percent of capital generated has been
returned to shareholders since inception of the share repurchase
program in 1994. During 2007, the Company purchased 60
million common shares at an average price of $59.42. At
December 31, 2007, there were approximately 105 million
shares remaining under authorizations to repurchase shares
approved by the Company’s Board of Directors.
CASH FLOWS
Cash Flows from Operating Activities
In 2007 and 2006, net cash provided by operating activities
exceeded net income, primarily due to provisions for losses and
benefits, which do not require cash at the time of provision.
Similarly, depreciation and amortization represent non-cash
expenses. In addition, net cash was provided by fluctuations in
other operating assets and liabilities (including the Membership
Rewards liability). These accounts vary significantly in the
normal course of business due to the amount and timing of
various payments.
For the year ended December 31, 2007, net cash provided
by operating activities of $8.5 billion decreased compared to
2006. The decrease was primarily due to an outflow of cash
resulting from fluctuations in the Company’s operating assets
and liabilities offset by higher net income.
Net cash provided by operating activities was higher in
2006 than 2005 due to fluctuations in other operating assets
and liabilities.
Management believes cash flows from operations, available
cash balances and short-term borrowings will be sufficient to
fund the Company’s operating liquidity needs.
Cash Flows from Investing Activities
The Company’s investing activities primarily include funding
cardmember loans and receivables, securitizations of cardmember
loans and receivables, and the Company’s Available-for-Sale
investment portfolio.
For the year ended December 31, 2007, net cash used in
investing activities of $17.1 billion increased compared to
2006, primarily due to net increases in cardmember receivables
and loans and cash used in investing activities attributable to
discontinued operations offset by an increase in proceeds from
loan and receivable securitizations.
In 2006, net cash used in investing activities decreased from
2005 primarily as a result of cash retained by Ameriprise after
the spin-off.
Cash Flows from Financing Activities
The Company’s financing activities primarily include issuing
debt and taking customer deposits in addition to the sale and
redemption of investment certificates. The Company also
regularly repurchases its common shares.
In 2007, net cash provided by financing activities of $15.5
billion increased compared to 2006, primarily due to a net
increase in debt and the net change in customers’ deposits,
partially offset by a decrease in the issuance of shares and an
increase in dividends paid.
In 2006, financing activities provided net cash greater than
in 2005 primarily due to a net increase in debt partially offset
by an increase in share repurchases.
FINANCING ACTIVITIES
The Company is committed to maintaining cost-effective,
well-diversified funding programs to support current and future
asset growth in its global businesses. The Company’s funding
plan is structured to meet expected and changing business
needs to fund asset balances efficiently and cost-effectively.
The Company relies on diverse funding sources, to help
42