American Express Company reported fourth-quarter income from continuing operations1 of $839 million, down 6 percent from $895 million a year ago.
(Millions, except per share amounts)
Quarters Ended Percentage Years Ended Percentage
December 31, Inc/(Dec) December 31, Inc/(Dec)
2007 2006 2007 2006
Revenues net of interest expense $7,364 $6,675 10% $27,731 $25,154 10%
Income From Continuing Operations $ 839 $ 895 (6%) $4,048 $3,611 12%
(Loss) Income From Discontinued
Operations $ (8) $ 27 # $(36) $ 96 #
Net Income $831 $ 922 (10%) $4,012 $ 3,707 8%
Earnings Per Common Share – Basic:
Income From Continuing Operations $0.72 $0.75 (4%) $3.45 $ 2.98 16%
(Loss) Income From Discontinued
Operations $ – $0.02 # $(0.03) $ 0.08 #
Net Income $0.72 $0.77 (6%) $ 3.42 $ 3.06 12%
Earnings Per Common Share â Diluted:
Income From Continuing Operations $0.71 $0.73 (3%) $3.39 $ 2.92 16%
(Loss) Income From Discontinued
Operations $ – $0.02 # $(0.03) $ 0.07 #
Net Income $0.71 $0.75 (5%) $ 3.36 $ 2.99 12%
Average Common Shares Outstanding
Basic 1,157 1,196 (3%) 1,173 1,212 (3%)
Diluted 1,178 1,224 (4%) 1,196 1,238 (3%)
Return on Average Equity* 37.3% 34.7% 37.3% 34.7%
* Computed on a trailing 12-month basis using net income over average total shareholdersâ equity (including discontinued operations) as included in the Consolidated Financial Statements prepared in accordance with U.S. generally accepted accounting principles (GAAP).
# Denotes a variance of more than 100%.
Diluted earnings per share from continuing operations were $0.71, down 3 percent from $0.73 a year ago.
Net income totaled $831 million for the quarter, down 10 percent from $922 million a year ago. On a per-share basis, net income was $0.71, down 5 percent from $0.75 a year ago.
Consolidated revenues net of interest expense rose 10 percent to $7.4 billion, up from $6.7 billion a year ago.
Consolidated expenses totaled $4.7 billion, up 3 percent from $4.6 billion a year ago.
The Company’s return on equity (ROE) was 37.3 percent, up from 34.7 percent a year ago.
For the full year, the Company reported income from continuing operations of $4.0 billion, up 12 percent from $3.6 billion a year ago. Diluted earnings per share from continuing operations rose to $3.39, up 16 percent from $2.92 a year ago.
Net income for the full year was $4.0 billion, an increase of 8 percent from the previous year. Earnings per share on a diluted basis increased to $3.36, up 12 percent from $2.99.
âResults for the year met or exceeded all of our long-term financial targets, even though we saw clear signs of a weakening economy and business environment in December,â said Kenneth I. Chenault, chairman and chief executive. âStrong Cardmember spending and the nearly 8.5 million new cards we added in 2007 represented a continuing return on multi-year business-building investments.
âDespite the December weakness that we discussed a few weeks ago, fourth-quarter business volumes and credit indicators continued to be in the top tier of the industry. Marketing and related investments remained focused on premium segments of the market. Each of our customer groups and geographic regions contributed to the 16 percent increase in Cardmember spending.
âThe fourth-quarter additions to reserves were appropriate for an environment that is more difficult than we have seen in recent years. While our outlook for 2008 remains cautious, and we continue to expect slower earnings growth in the year ahead, we are not changing our fundamental approach to managing the business. We expect to take advantage of growth opportunities in those parts of the market with strong underlying economics.
1. As previously announced, the Company entered into an agreement to sell its international banking subsidiary, American Express Bank Ltd.(AEB), which is now included in discontinued operations.
âWe are not immune from further deterioration in the economic and credit environment, but we believe our focus on the premium sector should help us to weather the current conditions better than many competitors.
âWe also remain confident in our ability, on average and over time, to meet our long-standing financial targets of 12 to 15 percent EPS growth, at least 8 percent revenue growth and a return on equity of 33 to 36 percent.â
The fourth-quarter results included a previously announced $438 million ($274 million after-tax) credit-related charge in the U.S. Card Services Segment.
Also, the fourth quarter included several previously announced items, including a gain of $1.13 billion ($700 million after-tax) from the Companyâs settlement with Visa, and:
* $143 million ($89 million after-tax) of incremental investments in business-building initiatives, * $74 million ($46 million after-tax) in litigation-related costs pertaining to the lawsuit against Visa, and * $50 million ($31 million after-tax) in contributions to the American Express Charitable Fund.
The fourth-quarter results also included a previously announced $685 million ($430 million after-tax) charge related to the Companyâs enhancements to its method of estimating the liability for Membership Rewards.
Significant items in the year-ago fourth quarter included:
* tax benefits totaling $45 million that related principally to certain foreign losses and to the finalization of state tax returns, and * a $68 million ($42 million after-tax) gain related to the rebalancing of an investment portfolio in the Travelers Cheques and Gift Card business.
Also included in the fourth quarterâs results were $16 million ($10 million after-tax) of reengineering costs. Year-ago reengineering costs totaled $64 million ($42 million after-tax).
Discontinued operations for the fourth quarter included a loss of $8 million compared with income of $27 million during the year-ago period, both primarily reflecting the results of AEBâs banking operations.
In the third quarter of 2007, the Company reorganized its businesses into two customer-focused groups: the Global Consumer Group and the Global Business-to-Business Group. The Companyâs segments were realigned accordingly.
In connection with the sale of AEB and beginning with the third quarter of 2007, and for all prior periods, AEB (except for certain components of AEB that are not being sold) results have been removed from the Corporate & Other segment and reported within the discontinued operations line on the Companyâs Consolidated Statements of Income. In addition to the agreement to sell AEB to Standard Chartered PLC, American Express International Deposit Company (AEIDC) was also contracted to be sold to Standard Chartered 18 months after the close of the AEB sale through a put/call agreement. AEIDC will continue to be reflected in continuing operations, within the Corporate & Other segment, until one year before the anticipated close of this portion of the transaction. Based on the assumed completion of the AEB sale in the first quarter of 2008, we expect to begin reporting AEIDCâs results in the discontinued operations line in the third quarter of 2008.
The following segment discussions, as well as the selected financial data for all periods presented, reflect the changes noted above.
U.S. Card Services reported fourth-quarter net income of $7 million, down from $473 million a year ago. While revenues net of interest expense increased substantially from year-ago amounts, the lower net income for 2007 is principally attributed to rising credit costs and the increased expense related to Membership Rewards.
Revenues net of interest expense for the fourth quarter increased 11 percent to $3.7 billion, reflecting higher spending and borrowing by consumers and small businesses, which were partially offset by higher interest expense and lower securitization income, net.
Total expenses increased 25 percent. Marketing, promotion, rewards and Cardmember services expenses increased 43 percent from the year-ago period. This was primarily due to charges of $408 million ($253 million after-tax) related to the previously mentioned Membership Rewards liability estimation enhancements and $84 million ($52 million after-tax) related to incremental investments in business-building initiatives above the planned level for the quarter. Human resources and other operating expenses decreased slightly.
Provisions for losses increased significantly, reflecting higher write-off and delinquency rates as well as growth in loans outstanding. The provision reflects $384 million ($241 million after-tax) of the $438 million ($274 million after-tax) credit-related charge previously mentioned. That charge included $288 million ($180 million after-tax) that was added to lending reserves and $96 million ($61 million after-tax) added to charge card reserves. The remaining $54 million ($33 million after-tax) of the credit-related charge related to a reduction in the fair market value of the Companyâs retained subordinated interest in securitized Cardmember loans that decreased securitization income, net.
International Card Services reported a fourth-quarter net loss of $68 million, compared with net income of $99 million a year ago. While revenues net of interest expense increased substantially from year-ago amounts, the lower net income for 2007 is principally attributed to the increased expense related to Membership Rewards and increased investments in business-building initiatives.
Revenues net of interest expense increased 16 percent to $1.2 billion, reflecting higher Cardmember spending, as well as higher loan balances, which were partially offset by higher interest expense.
Total expenses increased 55 percent. Marketing, promotion, rewards and Cardmember services expenses increased significantly, reflecting $216 million ($138 million after-tax) related to the previously mentioned Membership Rewards liability estimation enhancements. The increase also reflected $20 million ($12 million after-tax) related to the previously mentioned incremental investments in business-building initiatives above the planned level for the quarter. Human resources and other operating expenses increased 11 percent from a year ago.
Provisions for losses increased 5 percent from a year ago as growth in the loan portfolio was offset by a lower level of write-off and delinquency rates.
Global Commercial Services reported fourth-quarter net income of $110 million, down from $117 million a year ago. While revenues net of interest expense increased substantially from year-ago amounts, the lower net income for 2007 is principally attributed to the increased expense related to Membership Rewards.
Revenues net of interest expense increased 15 percent to $1.1 billion, reflecting higher spending by corporate Cardmembers and increased travel commissions.
Total expenses increased 18 percent. Human resources and other operating expenses increased 10 percent reflecting continued growth in the business. Marketing, promotion, rewards and Cardmember services expenses increased significantly, reflecting $61 million ($39 million after-tax) of the previously mentioned charges related to the Membership Rewards liability estimation enhancements.
Provisions for losses increased $24 million from year-ago levels, primarily reflecting higher volumes and write-offs.
Global Network & Merchant Services reported fourth-quarter net income of $254 million, up 26 percent from $201 million a year ago. Revenues net of interest expense for the fourth quarter increased 14 percent to $1.0 billion. The increase reflected continued strong growth in merchant-related revenue, primarily from higher company-wide billed business.
Spending on Global Network Services cards increased 39 percent from year-ago levels, reflecting continued growth in spending on cards issued by bank partners. Cards-in-force issued by bank partners increased 35 percent.
Total expenses increased 10 percent, reflecting higher human resources costs and expanded marketing and promotion activities, including portions of the previously mentioned incremental business-building investments above the planned level for the quarter.
Corporate and Other reported fourth-quarter net income of $536 million, compared with net income of $5 million a year ago. The increase was primarily due to the previously mentioned $700 million after-tax gain from the Companyâs settlement agreement with Visa, offset in part by the $46 million after-tax litigation-related costs associated with the lawsuit against Visa and the $31 million after-tax contribution to the American Express Charitable Fund.
The year-ago quarter also included $42 million after-tax gain related to the rebalancing of an investment portfolio that lengthened average maturities to more accurately anticipate future redemptions of outstanding Travelers Cheques and Gift Card products.
American Express Company is a leading global payments, network and travel company founded in 1850. For more information, visit www.americanexpress.com
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