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Article by DailyStocks_admin    (03-27-08 06:56 AM)

The Daily Warren Buffett Stock is AXP. Berkshire Hathaway owns 151,610,700 shares. As of Dec 31,2007, this represents 11.47 percent of portfolio.

BUSINESS OVERVIEW

Overview

American Express Company, together with its consolidated subsidiaries (“American Express,” the “Company,” “we,” “us” or “our”), is a leading global payments and travel company. Our principal products and services are charge and credit payment card products and travel-related services offered to consumers and businesses around the world. We were founded in 1850 as a joint stock association. We were incorporated in 1965 as a New York corporation.

Our headquarters are located in New York, New York in lower Manhattan. We also have offices in other locations in North America, as well as throughout the world.

During 2007, we realigned our reportable operating segments to reflect the reorganization of our businesses into two customer-focused groups—the Global Consumer Group and the Global Business-to-Business Group. Accordingly, U.S. Card Services and International Card Services are aligned within the Global Consumer Group and Global Commercial Services and Global Network & Merchant Services are aligned within the Global Business-to-Business Group.

Securities Exchange Act Reports and Additional Information

We maintain an Investor Relations Web site on the Internet at http://ir.americanexpress.com. We make available free of charge, on or through this Web site, our annual, quarterly and current reports and any amendments to those reports as soon as reasonably practicable following the time they are electronically filed with or furnished to the Securities and Exchange Commission (“SEC”). To access these, just click on the “SEC Filings” link under the caption “Financial Information & Filings” found on our Investor Relations homepage.

You can also access our Investor Relations Web site through our main Web site at www.americanexpress.com by clicking on the “About American Express” link, which is located at the bottom of our homepage. Information contained on our Investor Relations Web site and our main Web site is not incorporated by reference into this report or any other report filed with or furnished to the SEC.

2007 Highlights

Compared with 2006, we delivered:


•

revenues net of interest expense of $27.7 billion, up 10% from $25.2 billion;


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income from continuing operations of $4.0 billion, up 12% from $3.6 billion;


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net income of $4.0 billion up 8% from $3.7 billion;


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diluted earnings per share based on income from continuing operations of $3.39, up 16% from $2.92;

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diluted earnings per share based on net income of $3.36, up 12% from $2.99; and


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return on average equity of 37%, compared with 35%.

This strong performance was tempered by events at the end of the year, when the Company began to feel the effects of the weakening U.S. economy as cardmember spending slowed and past-due and write-off rates in U.S. Card Services increased. These trends led us to increase credit-related reserves in the fourth quarter and to adopt a more cautious view for 2008.

For a complete discussion of our 2007 financial results, including financial information regarding each of our reportable operating segments, see pages 26 -113 of our 2007 Annual Report to Shareholders, which are incorporated herein by reference. For a summary of the Company and our reportable operating segments, and a discussion of our principal sources of revenue, see pages 26-29 and pages 72-75, respectively, of the 2007 Annual Report to Shareholders.

On September 18, 2007, we entered into an agreement to sell our international banking subsidiary, American Express Bank Ltd. (“AEBL”) and American Express International Deposit Company (“AEIDC”), a subsidiary that issues investment certificates to AEBL’s customers, to Standard Chartered PLC for the approximate value of $1.1 billion, subject to certain regulatory approvals. This transaction is described in more detail below and on pages 27-28 under the caption “Financial Review” and Note 2 to our Consolidated Financial Statements on page 80 of our 2007 Annual Report to Shareholders, which descriptions are incorporated herein by reference.

On November 7, 2007, we announced that we had entered into an agreement with Visa, Inc., Visa USA, and Visa International (collectively “Visa”) to remove Visa and certain of its member banks as defendants in the Company’s lawsuit against MasterCard International, Inc. (“MasterCard”), Visa and their member banks. The lawsuit alleges MasterCard, Visa and their member banks illegally blocked the Company from the bank-issued card business in the United States. The agreement has been approved by Visa USA’s member banks. For additional information about this settlement agreement please see “Corporate Matters” within “Legal Proceedings” below.

Products and Services

The Company’s Global Consumer Group and Global Business-to-Business Group provide a variety of products and services worldwide.

The Global Consumer Group offers a range of products and services including:


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charge and lending (i.e., credit) card products for consumers and small businesses worldwide;


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consumer travel services; and


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stored value products such as Travelers Cheques and prepaid products.

The Business-to-Business Group provides, among other products and services:


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business travel, corporate cards and other expense management products and services;


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network services and merchant acquisition and merchant processing for the Company’s network partners and proprietary payments businesses; and


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point-of-sale, back-office, and marketing products and services for merchants.

In certain countries we have granted licenses to partially-owned affiliates and unaffiliated entities to offer some of these products and services.

Cards bearing our logo are issued by our principal operating subsidiary, American Express Travel Related Services Company, Inc. (“TRS”), and certain of its subsidiaries, and also by third-party institutions, and are accepted on our global card network at all merchant locations worldwide that accept American Express-branded Cards. In addition, depending on the product, Cards bearing our logo are generally accepted at ATM locations worldwide that accept Cards. TRS and its subsidiaries issue the vast majority of Cards on our network.

Our Global Network Services (“GNS”) business establishes and maintains relationships with banks and other institutions around the world who issue Cards and, in certain countries, acquire local merchants on the American Express network. GNS is a critical asset in broadening the Cardmember and merchant base for our network worldwide. Our Global Merchant Services (“GMS”) business provides us with access to rich transaction data through our closed loop network, which encompasses relationships with both the Cardmember and the merchant. This capability enables us to acquire new merchants, deepen relationships with existing merchant customers, process transactions, and provide targeted marketing and other value-added services to merchants in our network.

A key asset of our network is the American Express brand, which is one of the world’s most highly recognized and respected.

Global Network Services

We have been pursuing since May 1996 a strategy, through our GNS business, of inviting U.S. banks and other institutions to issue Cards on the American Express network, building on a business strategy we had implemented successfully in a number of countries outside the United States, where we have many banks and other financial institutions issuing Cards on the American Express network. By leveraging our global infrastructure and the appeal of the American Express brand, we aim to broaden our Cardmember and merchant base for our network worldwide. Our GNS business has established more than 117 card issuing and/or merchant acquiring arrangements with banks and other institutions in 125 countries.

In 2007, GNS signed 12 new partners to issue Cards on the American Express network. Additionally, GNS partners launched over 140 new products during 2007, bringing the total number of American Express-branded GNS partner products to approximately 680.

GNS focuses on partnering with qualified third-party banks and other financial institutions that choose to issue Cards accepted on our global network. Although we customize our network arrangements to the particular market and our partner’s requirements, as well as to our strategic plans in that marketplace, all GNS arrangements are designed to help issuers develop products for their highest-spending and most affluent customers and to support the value of American Express ® Card acceptance to merchants. We choose to partner with institutions who share a core set of attributes such as commitment to high quality standards, strong marketing expertise and compatibility with the American Express brand, and we require adherence to our product, brand and service standards.*

With approximately 680 different Card products launched on our network so far by our bank partners, GNS is an increasingly important business that is strengthening our brand visibility around the world, driving more transaction volume onto our merchant network and increasing the number of merchants accepting the American Express ® Card. GNS enables us to expand our global presence without having to invest large amounts of resources, as our GNS partners already have established attractive customer bases they can target with American Express-branded products. Since 1999, Cards-in-force issued by GNS partners have grown at a compound annual growth rate of 28%, and totaled 20 million Cards at the end of 2007. Outside the United States, 66% of new Cards issued in 2007 were Cards issued by one of our GNS partners. Spending on these GNS Cards has grown at a compound annual rate of 27% since 1999. Year over year spending growth in 2007 was 49%, with total spending equal to $53 billion.




* The use of the term “partner” or “partnering” does not mean or imply a formal legal partnership.

GNS Arrangements

Although the structures and details for each of the GNS arrangements vary, all of them generate revenues for us from the Card transaction volumes they drive on the American Express network. Gross revenues we receive per dollar spent on a Card issued by a GNS partner are lower than those from our proprietary Card issuing business. However, because the GNS partner is responsible for most of the operating costs and risk of its Card issuing business, our operating expenses and credit losses are lower than those in our proprietary Card issuing business. The GNS business model generates an attractive earnings stream and risk profile that requires a lower level of capital support. The return on equity in our GNS business can thus be significantly higher than that of our proprietary Card issuing business. Because the majority of GNS costs are fixed, the GNS business is highly scalable. GNS partners benefit from their association with the American Express brand and their ability to gain attractive revenue streams and expand and differentiate their product offerings with innovative marketing programs.

Our GNS arrangements fall into the following three main categories: Independent Operator Arrangements, Network Card License Agreements and Joint Venture Arrangements.

Independent Operator Arrangements

The first type of GNS arrangement is known as an independent operator (“IO”) arrangement. As of the end of 2007, we had 59 of these arrangements around the world. We pursue these arrangements to expand the presence of the American Express network throughout the world, in markets in which we do not offer a proprietary local currency Card. Under this type of arrangement, the partner’s local presence and relationships help us enhance the impact of our brand in the market, reach merchant coverage goals more quickly, and operate at economic scale and cost levels that would be difficult for us to achieve on our own. Subject to meeting our standards, we license our IO bank partners to issue local currency Cards in their markets, including the classic Green, Gold and Platinum American Express ® Cards. In addition, the majority of these partners serve as the merchant acquirer and processor for local merchants. American Express retains the relationship with multi-national merchants. Our IO partners own the customer relationships and credit risk for the Cards they issue, and make the decisions about which customers will be issued Cards. GNS generates revenues in IO arrangements from Card licensing fees, royalties on Cardmember billings, foreign exchange conversion revenue, royalties on merchant acquisition volume, discount revenue and, in some partnerships, royalties on net spread revenue. Our IO partners are responsible for transaction authorization, billing and pricing, Cardmember and merchant servicing and funding Card receivables for their Cards and payables for their merchants.

We bear the risk arising from the IO partner’s potential failure to meet its settlement obligations to us. We mitigate this risk by partnering with independent operators that we believe are financially sound and will meet their obligations, and by monitoring their financial health, their compliance with the terms of their relationship with us and the political, economic and regulatory environment in which they operate. In addition, we generally require IO partners to post a letter of credit, bank guarantee or other collateral to reduce this risk.

Examples of countries where we have entered into IO arrangements include Brazil, Russia, China, Ecuador, Greece, South Korea, Pakistan, Croatia, Peru, Portugal and Vietnam. In 2007, we sold our local proprietary Card issuing business in the Philippines and our local merchant acquiring business in Russia. Through our IO partnerships, we believe we can accelerate growth in Cardmember spending, Cards-in-force and merchant acceptance in these countries.

Network Card License Arrangements

The second type of GNS arrangement is known as a network card license (“NCL”). At the end of 2007, we had 54 of these arrangements in place. We pursue these arrangements to increase our brand presence and gain market share in markets in which we have a proprietary Card issuing business, and in a few cases those in which we also have IO partners. In an NCL arrangement, we grant the third-party financial institution a license to issue American Express-branded Cards. The NCL issuer owns the customer relationships for all Cards it issues, provides customer service to its Cardmembers, transaction authorization, billing and credit management, is responsible for the marketing of the Cards, and designs the Card product features (including rewards and other incentives for Cardmembers), subject to meeting certain standards. We operate the merchant network, route and process Card transactions from the merchant’s point-of-sale through submission to the issuer, and settle with issuers. The NCL is the type of arrangement that we have implemented with banks in the United States.

GNS’ revenues in NCL arrangements are driven by a variety of factors, including the level of Cardmember spending, royalties, currency conversions and licensing fees paid by the partner and fees charged to the Card issuer based on charge volume, and our provision of value-added services such as Cardmember insurance products and other Card features and benefits for the issuer’s Cards. As indicated above, the NCL issuer bears the credit risk for the issued Cards, as well as the Card marketing and acquisition costs, Cardmember fraud risks and costs of rewards and other loyalty initiatives. We bear the risk arising from the NCL partner’s potential failure to meet its settlement obligations to us. We mitigate this risk by partnering with issuers that we believe are financially sound and will meet their obligations, and by monitoring their financial health, their compliance with the terms of their relationship with us and the political, economic and regulatory environment in which they operate. In addition, we generally require NCL issuers to post a letter of credit, bank guarantee or other collateral to reduce this risk.

Examples of NCL arrangements include our relationships with Citibank (South Dakota), N.A. and Bank of America in the United States, Lloyds TSB Bank in the United Kingdom and Westpac Banking Corporation in Australia.

Joint Venture Arrangements

The third type of GNS arrangement is a joint venture (“JV”). We have utilized this type of arrangement in Switzerland, Belgium and several other countries. In these markets, TRS joins with a third party to establish a separate business in which TRS has a significant ownership stake. The JV typically signs new merchants to the American Express network and issues local currency Cards that carry our logo. In a JV arrangement, the JV assumes the Cardmember credit risk and bears the operating and marketing costs. Unlike the other two types of GNS arrangements, we share management, risk, and profit and loss responsibility with our JV partners. Income is generated by discount revenues, card fees and net spread revenues. The economics of the JV are similar to our proprietary Card issuing business, which we discuss below under “U.S. Card Services,” and we receive a portion of the JV’s income depending on the level of our ownership interest.

GNS Business Highlights

Outside the United States, in 2007, we signed a number of agreements to enhance our presence in markets such as China, Japan, and Brazil, and further expanded our global presence into new markets.

Some of the highlights of our GNS business outside the United States in 2007 include the:


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Launch of the Airmiles Duo product in the United Kingdom with Lloyds TSB;


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Introduction of the ICBC Staples Corporate American Express Card, the first American Express branded co-brand corporate card in China, and the ICBC Hainan Airlines American Express Card, the first American Express branded airline co-brand card in China with our partner the Industrial and Commercial Bank of China Limited (ICBC);


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Entry into a new card issuing partnership with China CITIC Bank and the launch of the first product under this partnership;


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Signing of an agreement with Banco Itau, one of the leading banks in Brazil, to issue and market cards on the American Express network;

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Entry into a new card issuing partnership with GE Consumer Finance in Japan (a Japanese subsidiary of GE Money, a unit of General Electric Company), and the launch of the first products under this partnership; and


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Launch of the SunMiles American Express Cards, a portfolio of four new airline co-brand cards with Cyprus Airways issued by the Bank of Cyprus.

In contrast to the situation outside the United States, where banks and other qualified institutions have issued Cards on our network for many years, until 2004 no major U.S. banks had issued Cards in the United States on the American Express global network. This situation was the result of rules and policies of Visa U.S.A. and Visa International Service Association (together, “Visa”) and MasterCard Incorporated and MasterCard International, Inc. (together, “MasterCard”) in the United States, which mandated expulsion of members that issued American Express-branded Cards. No bank was willing to risk forfeiting membership in Visa and/or MasterCard (collectively, the “bankcard associations”) to issue cards on our network.

However, as a consequence of the decision in a lawsuit filed in October 1998 by the U.S. Department of Justice against Visa and MasterCard in which such rules and policies were found to violate the U.S. antitrust laws, these rules and policies were finally repealed in late 2004. The Supreme Court’s decision not to hear Visa’s and MasterCard’s appeal of the lower courts’ rulings against them cleared the way for implementation of the trial court’s order requiring the repeal of the illegal rules and policies. We view this decision as a major victory for U.S. consumers as well as U.S. banks because it opened the door to more vigorous network competition and more innovative card products and services.

For American Express, the conclusion of the litigation brought by the Justice Department meant that we were able to extend our network to other card issuers in the United States, just as we have done internationally. Building a network business in the United States that operates alongside our proprietary Card business provides us with new and substantial opportunities for growth. We have acted on this development by entering into several GNS arrangements with financial institutions in the United States, which have all launched products in the marketplace. These companies include MBNA (which subsequently merged with Bank of America), Bank of America, Citibank (South Dakota), N.A., HSBC Bank Nevada N.A., Barclays, USAA Federal Savings Bank and GE Money Bank.

Some of the highlights of our GNS business in the United States in 2007 include the:




•


Launch of the Bank of America Accolades ™ American Express Card, the first premium credit card designed exclusively for Bank of America’s affluent, wealthy and ultra-wealthy clients served through Premier Banking & Investments™, The Private Bank of Bank of America, and its extension, Family Wealth Advisors; and


•

Launch of the ultra-premium Citi Chairman American Express Card.

In November 2004, we filed a lawsuit against Visa, MasterCard and certain of their member banks seeking monetary damages resulting from the illegal rules that were struck down in the U.S. Department of Justice lawsuit discussed above. On November 7, 2007, we announced that we had entered into an agreement with Visa to remove Visa and certain of its member banks as defendants in the lawsuit. Under terms of the settlement agreement reached with Visa, we will receive an aggregate maximum payment of up to $2.25 billion. MasterCard remains the sole defendant in the American Express case. (You can read more about this lawsuit and the Visa settlement in the “Legal Proceedings” section of this report below.)

Global Merchant Services

We operate a GMS business, which includes signing merchants to accept Cards, accepting and processing Card transactions, and paying merchants that accept Cards for purchases made by Cardmembers with Cards (“Charges”). We also provide point-of-sale and back-office products and services and marketing programs to merchants, leveraging the capabilities provided by our closed loop structure.

Our objective is for Cardmembers to be able to use the Card wherever and however they desire, as well as to increase merchant coverage in key geographic areas and in selected new industries that have not traditionally accepted general purpose credit and charge cards as a means of payment. We add new merchants to our network through a number of sales channels: a proprietary sales force, third-party sales agents, strategic alliances with banks and processors, the Internet, telemarketing and inbound “Want to Honor” calls (i.e., merchants desiring to accept the Card contacting us directly). As discussed in the “Global Network Services” section, our IO partners and joint ventures add new local merchants to the American Express network outside the United States.

Since the early 1990s, we have significantly expanded the number of merchants that accept our Card products as well as the kinds of businesses that accept the Card. In recent years, we have focused our efforts on increasing the use of our Cards for everyday spending. In 1990, 64% of our U.S. billings came from the travel and entertainment sectors and 36% came from retail and other sectors. That proportion has now been more than reversed. In 2007, U.S. non-travel and entertainment billings represented over 69% of the U.S. billed business on American Express ® Cards. This shift resulted from the growth, over time, in the types of merchants that began to accept charge and credit cards in response to consumers’ increased desire to use these cards for more of their purchases, and our focus on expanding Card acceptance to meet Cardmembers’ needs.

During 2007, we continued our efforts to encourage consumers to use the Card for everyday spending. We increased the number and types of merchants in retail and everyday spending categories that accept the Card, such as quick-serve restaurants, mass transit, healthcare and recurring billing merchants.

In addition, we also continued our drive to bring Card acceptance to industries where cash or checks are the predominant form of payment, including payments for residential rent, residence/destination clubs and private jet travel. In addition, we have made headway in promoting Card acceptance for Business-to-Business payments in industries such as pharmaceuticals, wholesale foods and consumer packaged goods. As we penetrate these industries, there is the potential to increase our average Cardmember spending.

Globally, acceptance of general purpose charge and credit cards continues to increase, including among merchants in industries that have not traditionally accepted charge and credit cards. As in prior years, during 2007, we continued to grow merchant acceptance of Cards around the world and to refine our approach to calculating merchant coverage in accordance with changes in the marketplace. Management estimates that, as of the end of 2007, our merchant network in the United States accommodated more than 90% of our Cardmembers’ general purpose charge and credit card spending, and our international merchant network as a whole accommodated approximately 80% of our Cardmembers’ general purpose charge and credit card spending. These percentages are based on comparing our Cardmembers’ spending on our network currently with our estimate of what our Cardmembers would spend on our network if all merchants that accept general purpose credit and charge cards accepted American Express ® Cards.

We earn “discount” revenue from fees charged to merchants for accepting Cards as payment for goods or services sold. The merchant discount is the fee charged to the merchant for accepting Cards and is generally expressed as a percentage of the amount charged on a Card. The merchant discount is generally deducted from the amount of the payment that the “merchant acquirer” (in most cases, TRS or one of its subsidiaries) pays to a merchant for Charges submitted. A merchant acquirer is the entity that contracts for Card acceptance with the merchant, accepts transactions from the merchant, pays the merchant for these transactions and submits the transactions to the American Express network, which submits the transactions to the appropriate Card issuer. When a Cardmember presents the Card for payment, the merchant creates a record of charge for the transaction and submits it to the merchant acquirer for payment. To the extent that TRS or one of its subsidiaries is the merchant acquirer, the merchant discount is recorded by us as discount revenue at the time the transaction is received by us from the merchant.

Where we act as the merchant acquirer and the Card presented at a merchant is issued by a third-party bank or financial institution, such as in the case of our GNS partners, we will make financial settlement to the merchant and receive the discount revenue. In our role as the operator of the Card network, we will also receive financial settlement from the Card issuer, who receives an issuer rate (i.e., the individually negotiated amount that Card issuers receive for transactions charged on our network with Cards that they issue, which is usually expressed as a percentage of the charged amount). The difference between the discount revenue (received by us in the form of the merchant discount) and the issuer rate received by the Card issuer generates a return to us. Where we are the Card issuer and the merchant acquirer is a third-party bank or financial institution (which can be the case in a country in which the IO is the local merchant acquirer), we receive an individually negotiated issuer rate in our settlement with the merchant acquirer, which is recorded by us as discount revenue. By contrast with networks such as Visa and MasterCard, there is no collectively-set interchange rate on the American Express network.

The merchant discount rate that we charge is principally determined by the value we deliver to the merchant and generally represents a premium over other networks. We deliver greater value to the merchant through higher spending Cardmembers relative to cards issued on competing card networks, the overall higher volume of spending by all Cardmembers, marketing expertise, and Cardmembers’ insistence on using their Cards when enrolled in rewards or other Card loyalty programs, including Cardmembers who are part of our Corporate Card program.

The merchant discount rate varies, among other factors, with the industry in which the merchant does business, the Charge volume, the timing and method of payment to the merchant, the method of submission of Charges and, in certain instances, the geographic scope of the Card acceptance agreement signed with us (local or global) and the Charge amount.

In 2007, as in prior years, we experienced some reduction in our global weighted average merchant discount rate, principally reflecting the net impact of selective repricing initiatives, changes in the mix of business, regional market pressures and volume-related pricing adjustments. We expect that the effect of these factors will likely continue to result in some erosion over time of the weighted average merchant discount rate, particularly outside the United States.

While most merchants understand our merchant discount rate pricing in relation to the value provided, we do encounter a relatively small number of merchants that accept our Cards, but tell their customers that they prefer to accept another type of payment and, consequently, suppress use of the Card. We respond to this issue aggressively to ensure that our Cardmembers are able to use their Card where and when they want to and to protect the American Express brand. We have made progress by: concentrating on acquiring merchants where Cardmembers want to use the Card; continuing to enhance the value we provide by programs such as My WishList and American Express Selects ® , which enable merchants to gain valuable exposure and additional sales by providing exclusive offers and experiences to American Express Cardmembers; providing better and earlier communication of our value proposition; and, when necessary, cancelling merchants who suppress the use of our Card products.

In the case of My WishList, a popular seasonal limited e-tail Web site we developed in the U.S. in conjunction with merchant partners, we provide Cardmembers with opportunities to buy a limited number of sought-after items, such as automobiles, trips, electronics and jewelry, and attractive travel and lifestyle experiences, at a significant discount from their retail prices, as well as access to numerous offers from top brands. My WishList brings attention to the merchant partners and allows them to reach out to our Cardmembers. Through American Express Selects ® , we make available to our Cardmembers high quality shopping, dining and travel values from merchants all over the world, and these merchants have an opportunity to reach out to our Cardmembers. American Express Selects ® is a global platform available to American Express Cardmembers and merchants.

Merchant satisfaction is a key goal of our Global Merchant Services business. We focus on understanding and addressing factors that influence merchant satisfaction, including developing and executing innovative programs that increase Card usage at merchants, using technology resources, enhancing operational efficiencies and merchants’ ease of doing business with us, applying our closed loop capabilities and deep marketing expertise, and strengthening our relationships with merchants through an expanding roster of services that help them meet their business goals. In 2007 and early 2008 we announced the signing of agreements with First Data Merchant Services Corporation, NOVA Information Systems, and Heartland Payment Systems allowing them to offer Card acceptance as part of an integrated solution for small- and medium-sized merchants. Under these arrangements, First Data Merchant Services Corporation, NOVA Information Systems, and Heartland Payment Systems will provide payment processing services to merchants on our behalf for Card transactions, while we will retain the acceptance contract with participating merchants, establish merchant pricing, and receive the same transactional information we always have received.

We also offer our merchant customers a full range of point-of-sale solutions, including integrated point-of-sale terminals and direct links that allow merchants to accept American Express ® Cards, as well as bankcards, debit cards and checks, and contactless point-of-sale terminals that enable merchants to accept contactless payment products including our ExpressPay from American Express ® products. Virtually all proprietary point-of-sale solutions support direct processing (i.e., direct connectivity) to American Express, which can lower a merchant’s cost of Card acceptance and enhance payment efficiency.

ExpressPay from American Express ® , a contactless payment feature, is designed to be a fast, easy-to-use alternative for making everyday purchases at merchants where speed and convenience is important. ExpressPay is now accepted at over 30,000 locations in the United States, including top quick-service restaurant, movie theater, drug store and convenience store chains. ExpressPay, powered by radio-frequency technology, is currently available in a key-fob form and has also been introduced within several Card products. In 2007, we expanded merchant coverage of ExpressPay from American Express ® through the entry into an agreement with Tully’s Coffee Corporation, a leading specialty coffee retailer with stores in Washington, California, Idaho and Arizona, and the expansion of merchant acceptance through Office Depot’s 1,200 nationwide locations.

We continue to focus our efforts on the recurring billing industry through Automatic Bill Payment, a service that allows merchants to bill Cardmembers on a regular basis for recurring charges such as insurance premiums, newspaper subscriptions, health club memberships, commutation costs and cable television service. We have also made modifications to our host authorization system to approve more transactions and reduce Cardmember inconvenience at the point-of-sale without a corresponding increase in fraud or credit losses.

Wherever we manage both the acquiring relationship with merchants and the Card issuing side of the business, there is a “closed loop,” which distinguishes our network from the bankcard networks in that we have access to information at both ends of the Card transaction. We maintain a direct relationship with both our Cardmembers and our merchants, and we handle all key aspects of those relationships. Our relationships allow us to analyze information on Cardmembers’ spend. This enables us to provide targeted marketing for merchants and special offers to Cardmembers through a variety of channels, subject to compliance with our privacy policy and legal requirements. We protect the confidentiality of this data, and comply with strict privacy, firewall and applicable legal requirements.

We work closely with our Card issuing and merchant acquiring bank partners to maintain key elements of this closed loop, which permits them to customize marketing efforts, deliver greater value to their Cardmembers and help us to direct increased business to merchants who accept the Card.

As the merchant acquirer, we have certain exposures that arise if a billing dispute between a Cardmember and a merchant is settled in favor of the Cardmember. Drivers of this liability are returns in the normal course of business, disputes over fraudulent charges, the quality or non-delivery of goods and services and billing errors. Typically, we offset the amount due to the Cardmember against payments for the merchant’s current or future Charge submissions. We can realize losses when a merchant’s offsetting charge submissions cease, such as when the merchant commences a bankruptcy proceeding or goes out of business. We actively monitor our merchant base to assess the risk of this exposure. When appropriate, we will take action to reduce the net exposure to a given merchant by requiring a parent company guarantee or letter of credit, holding cash reserves funded through Charge payable holdbacks from a merchant, lengthening the time between when the merchant submits a Charge for payment and when we pay the merchant or implementing other appropriate risk management tools. We also establish reserves on our balance sheet for these contingencies.

With the increase in electronic transmission of credit card transaction data over merchants’ point-of-sale systems, the necessity for merchants and merchant processors to secure this data against accidental or intentional compromise using a standard protocol that applies to all card types, became clear to American Express and the other major card networks. In 2006, in order to strengthen the security practices of merchants and payment processing firms and to secure payment account data in a globally consistent manner, we and Discover Financial Services, JCB, MasterCard Worldwide and Visa formed PCI Security Standards Council, LLC (“PCI SSC”), an independent standards-setting organization to manage the ongoing evolution of the Payment Card Industry (PCI) Data Security Standard, which focuses on improving payment card account security throughout the transaction process. By establishing PCI SSC to manage the PCI Data Security Standard, we and the other founders have developed a common standard that is more accessible and efficient for participants in the payment card industry. All our merchants and service providers that store, process and transmit payment card data are required to comply with the PCI Data Security Standard. PCI SSC is dedicated to driving greater education, awareness and adoption of the PCI Data Security Standard to ensure that all stakeholders involved in the payment process conduct their business responsibly.

CEO BACKGROUND

DANIEL F. AKERSON
Managing Director, The Carlyle Group , a private equity firm, March 2003 to present. Director, Manor Care, Inc., MultiPlan, Inc., and Freescale Semiconductor, Inc. Trustee, United States Naval Academy Foundation.

CHARLENE BARSHEFSKY
Senior International Partner, WilmerHale , attorneys, Washington, D.C., 2001 to present. United States Trade Representative and a member of the President’s Cabinet from 1997 to 2001. Board of Directors, Council on Foreign Relations. Director, The Estée Lauder Companies Inc., Starwood Hotels & Resorts Worldwide, Inc. and Intel Corporation. Trustee, Howard Hughes Medical Institute.

URSULA M. BURNS
President, Xerox Corporation , a global company engaged in manufacturing, servicing and financing a complete range of document equipment and services, April 2007 to present; Senior Vice President and President, Business Group Operations, January 2003 to April 2007; President, Document Systems and Solutions Group, October 2001 to December 2002; Senior Vice President, Corporate Strategic Services, May 2000 to October 2001. Director, Boston Scientific Corporation, Xerox Corporation, National Association of Manufacturers, the University of Rochester, National Academy Foundation and The National Center on Addiction and Substance Abuse at Columbia University.

KENNETH I. CHENAULT
Chairman and Chief Executive Officer, American Express Company , April 2001 to present; Chief Executive Officer, January 2001 to April 2001. Director, International Business Machines Corporation. Member, the World Trade Center Memorial Foundation. Trustee, NYU Hospitals Center and the New York University School of Medicine Foundation.


PETER CHERNIN
President, Chief Operating Officer and Director, News Corporation, a diversified international media and entertainment company, October 1996 to present. Director, DirecTV, Inc. and Gemstar-TV Guide International, Inc.


JAN LESCHLY
Founder and Partner, Care Capital LLC , a private equity firm, May 2000 to present. Director, The A.P. Moller-Maersk Group. Member, the Emory University Business School Dean’s Advisory Council. Adjunct Professor, Copenhagen Business School.



RICHARD C. LEVIN
President, Yale University, a private, independent university, July 1993 to present. Director, Satmetrix Systems, Inc. Trustee of the William and Flora Hewlett Foundation.



RICHARD A. MCGINN
General Partner, RRE Ventures , an investment advisory and venture capital firm, August 2001 to present. Director, Via Systems, Inc.


EDWARD D. MILLER
Former President and Chief Executive Officer, AXA Financial, Inc. , a worldwide provider of financial protection and wealth management services, May 2001 to present. President and Chief Executive Officer, August 1997 to May 2001. Director, Korn/Ferry International and The Feinstein Institute for Medical Research. Chairman of the Board of Directors of Phoenix House, Chairman of the Partnership for New York City’s Security and Risk Management Task Force and Trustee of the New York City Police Foundation. Senior Advisor to National Grid Corp.


STEVEN S REINEMUND
Retired Chairman of the Board, PepsiCo, Inc., a company that produces beverages and convenient foods, May 2007 to present; Executive Chairman of the Board, October 2006 to May 2007; Chairman and Chief Executive Officer, May 2001 to October 2006. Director, Johnson & Johnson, Marriott International, Inc. and Exxon Mobil Corporation. Trustee, The Cooper Institute and United States Naval Academy Foundation.


ROBERT D. WALTER
Founder and Executive Director, Cardinal Health, Inc. , a company that provides products and services supporting the health care industry, November 2007 to present; Executive Chairman of the Board, April 2006 to November 2007; Chairman and Chief Executive Officer, 1979 to April 2006. Director, Battelle Memorial Institute. Member, The Business Council.


RONALD A. WILLIAMS
Chairman and Chief Executive Officer, Aetna Inc., a company providing managed care benefits and health insurance, October 2006 to present; President and Chief Executive Officer from February 2006 to October 2006; President, from May 2002 to February 2006. Trustee, The Conference Board and Connecticut Science Center. Member of Dean’s Advisory Council and Alfred P. Sloan Management Society at the Massachusetts Institute of Technology. Member, The Business Council and The Business Roundtable.

COMPENSATION

(1) Annual Retainers. The Company pays its non-management Directors an annual retainer of $80,000 for Board service and pays an additional annual retainer of $10,000 to members of the Audit Committee and $5,000 to members of the Compensation and Benefits Committee, including the chairs. The Company also pays an annual retainer to the chair of each of the Committees as follows: Audit $20,000; Compensation and Benefits $15,000; Nominating and Governance $10,000; and Public Responsibility $10,000. The Company pays no fees for attending meetings, but the annual retainer for Board service of $80,000 is reduced by $20,000 if a Director does not attend at least 75% of our Board meetings and meetings of any Committee on which he or she serves. All the non-management Directors, except for Messrs. McGinn and Reinemund, deferred all or a portion of their 2007 retainers into either a cash account, a share equivalent unit account, or both, under the Deferred Compensation Plan described below in note 4.


(2) Share Equivalent Unit Plan. To assure that the majority of each non-management Director’s annual compensation is aligned with shareholder interests, each non-management Director is credited with share equivalent units (SEUs) upon election or re-election at each annual meeting of shareholders. Each SEU reflects the value of a common share of the Company. Each Director receives additional SEUs as dividend equivalents on the units in his or her account. SEUs do not carry voting rights and must be held until a Director ends his or her service on the Board. At that time, each SEU is payable in cash equal to the then value of one Company common share. On April 23, 2007, each non-management Director elected was credited with 3,400 SEUs, having a date of grant fair value of $207,910.



This column consists of (i) the expense recognized by the Company in its financial statements in 2007 in accordance with Statement of Financial Accounting Standards No. 123(R) (SFAS 123R) with respect to the SEU awards granted in April 2007 and the dividend equivalents credited on the SEU award balance of each Director, reduced by (ii) the decline in value during 2007 of each Director’s SEU award balance, limited to the appreciation in such balance included in this table in last year’s proxy statement.



As of December 31, 2007, the SEU balance in each Director’s account was: Mr. Akerson 13,293; Ms. Barshefsky 23,959; Ms. Burns 16,785; Mr. Chernin 6,871; Mr. Jordan 70,877; Mr. Leschly 13,293; Mr. Levin 3,418; Mr. McGinn 13,293; Mr. Miller 17,941; Mr. Popoff 23,337; Mr. Reinemund 3,418; Mr. Walter 20,911; and Mr. Williams 4,183. These amounts represent the aggregate number of SEUs granted under the Share Equivalent Unit Plan for all years of service as a Director, additional units credited as a result of the reinvestment of dividend equivalents and, for Messrs. Jordan, Miller, Popoff and Williams and Ms. Barshefsky and Ms. Burns, retainer amounts deferred into their SEU accounts under the Deferred Compensation Plan described below in note 4 and dividend equivalents thereon. The SEUs do not count toward the share ownership guidelines we have established for Directors.


(3) Option Awards. The Company has not granted stock options to Directors since April 2002. In April 2002 and in prior years, the Company made stock option grants to each non-management Director on the date of the annual shareholders’ meeting. As of December 31, 2007, Messrs. Jordan and Leschly each had 17,135 vested outstanding options.


(4) Retirement Benefits. We offer no retirement benefits to non-management Directors who began their Board service after March 31, 1996. We pay a retirement benefit to non-management Directors who began their Board service on or before March 31, 1996, have served on our Board for at least five years, and have never been our employees. The retirement benefit consists of a payment of $30,000 per year for each year a Director served on the Board. Payments cease after a Director’s death. Three of our Directors, Messrs. Akerson, Jordan and Popoff, are eligible to receive retirement benefits in the future. Included in this column are the changes in the actuarial present value from 2006 to 2007 of the accumulated benefit, as follows: Mr. Akerson $6,408; Mr. Jordan $18,283; and Mr. Popoff $20,349.



Deferred Compensation Plan. Non-management Directors may defer the receipt of up to 100% of their annual retainer fees into either: (1) a cash account that we value based on a schedule linked to our return on equity, which is the same schedule we use for the deferred compensation plan in which management participates shown on page 53, and/or (2) the SEU account described above. Under either alternative, Directors will receive cash payments and will not receive shares upon payout of their deferrals. This column includes the above-market portion of the earnings during 2007 on amounts deferred under this plan in cash accounts for the following Directors in the amounts stated: Mr. Akerson $80,610; Mr. Chernin $6,062; Mr. Jordan $187,645; Mr. Leschly $99,719; Mr. Levin $1,669; Mr. Popoff $40,746; and Mr. Walter $6,905. Earnings in 2007 were considered to be above-market to the extent that the rate of interest exceeded 5.89%.


(5) Insurance. We provide our non-management Directors with group term life insurance coverage of $50,000. The group life insurance policy is provided to the Directors on a basis generally available to all Company employees. Directors may purchase $50,000 of additional group term life insurance at their own expense.



Directors’ Charitable Award Program. The Company maintains a Directors’ Charitable Award Program for Directors elected prior to July 1, 2004. To fund this program we purchased joint life insurance on the lives of participating Directors, including Mr. Chenault, and advisors to the Board. We will receive a $1,000,000 benefit following the death of a Director and $500,000 following the death of an advisor. We expect to donate one-half of the benefit to the American Express Foundation and one-half to the charitable organization that the Director or advisor recommends. In 2007, the Company paid premiums for policies on the following Directors in the amounts stated: Mr. Akerson $25,574; Ms. Burns $18,942; Mr. Leschly $35,741; Mr. Miller $24,925; and Mr. Walter $16,450, which amounts are included in this column.



Matching Gift Program. Directors are eligible to participate in the Company’s Matching Gift Program on the same basis as Company employees. Under this program, the American Express Foundation matches gifts to approved charitable organizations up to $8,000 per calendar year.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

merican Express Company (the Company) is a leading global payments, network, and travel company. The Company offers a broad range of products and services including charge and credit cards; travel agency services; travel and business expense management products and services; network services and merchant acquisition and merchant processing for the Company’s network partners and proprietary payments businesses; lending products; point-of-sale and back-office products and services for merchants; magazine publishing; and stored value products such as Travelers Cheques and gift cards. The Company’s various products and services are sold globally to diverse customer groups, including consumers, small businesses, mid-market companies, and large corporations. These products and services are sold through various channels including direct mail, on-line applications, targeted sales forces, and direct response advertising.



The Company generates revenue from a variety of sources including payment products, such as charge and credit cards, travel services, and stored value products, including Travelers Cheques. Charge and credit cards generate four types of revenue for the Company:



• Discount revenue, which is the Company’s largest revenue source, represents fees charged to merchants when cardmembers use their cards to purchase goods and services on the Company’s network;

• Finance revenue, which is earned on outstanding balances related to the cardmember lending portfolio;

• Card fees, which are earned for annual membership, and other commissions and fees such as foreign exchange conversion fees and card-related fees and assessments; and

• Securitization income, net which reflects the net earnings related to cardmember loans financed through securitization activities.



In addition to funding and operating costs associated with these activities, other major expense categories are related to marketing and rewards programs that add new cardmembers and promote cardmember loyalty and spending, and provisions for anticipated cardmember credit and fraud losses.



The Company believes that its “spend-centric” business model (which focuses on generating revenues primarily by driving spending on its cards and secondarily by finance charges and fees) has significant competitive advantages. Average spending per cardmember, which is substantially higher than the Company’s competitors’, represents greater value to merchants in the form of loyal customers and higher sales. This gives the Company the ability overall to earn a premium discount rate and invest in greater value-added services for merchants and cardmembers. As a result of the higher revenues generated from higher spending, the Company has the flexibility to offer more attractive rewards and other incentives to cardmembers, which in turn create an incentive to spend more on their cards.



The Company creates shareholder value by focusing on the following elements:



• Driving growth principally through organic opportunities and related business strategies, as well as joint ventures and selected acquisitions;

• Delivering returns well in excess of the Company’s cost of capital; and

• Distributing excess capital to shareholders through dividends and stock repurchases.



Overall, it is management’s priority to increase shareholder value over the moderate to long term by achieving the following long-term financial targets, on average and over time:



• Revenues net of interest expense growth of at least 8 percent;

• Earnings per share growth of 12 to 15 percent; and

• Return on average equity (ROE) of 33 to 36 percent.



The relatively high ROE target reflects the success of the Company’s spend-centric business model and its effectiveness in capturing high spending consumer, small business, and corporate cardmembers.

Assuming the Company achieves its financial objectives noted above, it will seek to return to shareholders an average of 65 percent of capital generated, subject to business mix, acquisitions, and rating agency requirements.



Certain reclassifications of prior period amounts have been made to conform to the current presentation, including revenue and expense reclassifications contained in the current report on Form 8-K dated November 1, 2007. These reclassifications related to reportable operating segments and discontinued operations as further discussed below, and reclassifications from professional services and occupancy and equipment expense to human resources and other expense. In addition, beginning prospectively as of July 1, 2006, certain card acquisition-related costs were reclassified from other expenses to a reduction in net card fees. Except for discontinued operations as discussed below, these items had no impact on the Company’s consolidated pretax income from continuing operations, income tax provision, and income from continuing operations.



Certain of the statements in this Form 10-Q report are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. See the “Forward-Looking Statements” section below.



Reportable Operating Segments



The Company instituted organizational changes effective July 1, 2007, which reflect a reorganization of the Company into two distinct customer-focused groups, the Global Consumer Group and the Global Business-to-Business Group. The Company continues to report the U.S. Card Services segment and the Global Network & Merchant Services segment consistent with previous reporting. The previously reported International Card & Global Commercial Services segment is now reported as two separate segments, the International Card Services segment and the Global Commercial Services segment. The U.S. Card Services and International Card Services segments are aligned with the Global Consumer Group, and the Global Network & Merchant Services and Global Commercial Services segments are aligned with the Global Business-to-Business Group. The Company has reclassified the prior period amounts to be consistent with the new reportable operating segments.



Discontinued Operations



On September 18, 2007, the Company announced that it entered into an agreement to sell its international banking subsidiary, American Express Bank Ltd. (AEB) and American Express International Deposit Company (AEIDC), a subsidiary which issues investment certificates to AEB’s customers, to Standard Chartered PLC (Standard Chartered) for the approximate value of $1.1 billion, subject to certain regulatory approvals. Standard Chartered will pay the Company an amount equal to the net asset value of the AEB businesses that are being sold at the closing date plus $300 million. At September 30, 2007, this would have amounted to approximately $825 million. As discussed above, the Company also expects to realize an additional amount representing the net asset value of AEIDC, which was also contracted to be sold to Standard Chartered through a put/call agreement subsequent to the sale of AEB. As of September 30, 2007, the net asset value of that business was $262 million. This value is expected to be realized through (i) dividends from the subsidiary to the Company and (ii) a subsequent payment from Standard Chartered based on the net asset value of AEIDC on the date the business is transferred to them 18 months after the completion of the sale of AEB.



Beginning with the third quarter of 2007, and for all prior periods, the results, assets, and liabilities of AEB (except for certain components of AEB that are not being sold) have been removed from the Corporate & Other segment and reported within the discontinued operations captions in the Company’s Consolidated Financial Statements. AEIDC will continue to be included in continuing operations within the Corporate & Other segment until such time as AEIDC qualifies for classification as a discontinued operation which will occur approximately one year prior to its transfer to Standard Chartered.



The operating results, assets and liabilities, and cash flows of discontinued operations are presented separately in the Company’s Consolidated Financial Statements and the following discussion reflects continuing operations unless otherwise noted.

Consolidated Results of Operations for the Three Months Ended September 30, 2007 and 2006



The Company’s consolidated income from continuing operations for the three months ended September 30, 2007, increased $140 million or 15 percent to $1.1 billion as compared to the same period a year ago, and diluted earnings per share (EPS) from continuing operations rose $0.14 or 18 percent to $0.90.



The Company’s consolidated net income increased $100 million or 10 percent to $1.1 billion, and diluted EPS increased $0.11 or 14 percent to $0.90. Net income included a loss of $7 million from discontinued operations as compared to $33 million of income from discontinued operations a year ago. On a trailing 12-month basis, ROE was 38 percent, up from 34 percent a year ago.



The Company’s revenues, expenses, and provisions for losses and benefits are affected by changes in the relative values of non-U.S. currencies to the U.S. dollar. The currency rate changes increased the growth rates of revenues net of interest expense, total expenses, and provisions for losses and benefits by approximately 2 percent for the three months ended September 30, 2007.



Results from continuing operations for the three months ended September 30, 2007 included:



• An $81 million ($41 million after-tax) charge related to the sale of certain AEIDC securities and the reclassification of the AEIDC investment portfolio from available-for-sale to the trading investment category as a result of the related AEB sale agreement’s impact on the holding period for these investments; and

• A $75 million tax benefit primarily related to the resolution of prior years’ tax items.



Results from continuing operations for the three months ended September 30, 2006 included:



• A $33 million ($24 million after-tax) gain related to the sale of the Company’s card and merchant-related activities in Malaysia and Indonesia.



Also included in the three months ended September 30, 2007 and 2006, were $10 million ($7 million after-tax) and $11 million ($7 million after-tax) of reengineering costs, respectively.



Revenues Net of Interest Expense



Consolidated revenues net of interest expense were $6.9 billion, up $680 million or 11 percent from $6.3 billion in the same period a year ago. Revenues net of interest expense increased due to greater discount revenue, higher interest income, and increased other commissions and fees, partially offset by increased interest expense and decreased other revenues.



Discount revenue rose $400 million or 12 percent to $3.7 billion as a result of a 16 percent increase in worldwide billed business. The slower growth in discount revenue compared to billed business growth reflected the relatively faster growth in billed business related to Global Network Services (GNS) where the Company shares the discount revenue with third-party issuing partners, and higher cash-back rewards costs and corporate incentive payments. The average discount rate was 2.57 percent for both the three month periods ended September 30, 2007 and 2006. Selective repricing initiatives, continued changes in the mix of business, and volume-related pricing discounts for merchants acquired by the Company will likely result in some erosion of the average discount rate over time. The increase in worldwide billed business reflected increases in average spending per proprietary basic card, growth in basic cards-in-force, and a 45 percent increase in billed business related to GNS.

U.S. billed business and billed business outside the United States were up 13 percent and 23 percent, respectively, due to increases in average spending per proprietary basic card and growth in basic cards-in-force. The growth in billed business both within the United States and outside the United States reflected increases within the Company’s consumer card business, small business spending and Corporate Services volumes.

Assuming no changes in foreign exchange rates, total billed business outside the United States reflected proprietary growth in Europe and Latin America in the low double-digits and growth in Canada and Asia Pacific in the high single-digits.



The increase in overall cards-in-force within both proprietary and GNS activities reflected continued strong card acquisitions as well as continued solid average customer retention levels. In the U.S. and non-U.S. businesses, 1.2 million and 1.3 million cards were added during the three months ended September 30, 2007, respectively.



Other commissions and fees increased $105 million or 19 percent to $644 million due to higher card-related conversion revenues and greater assessment and service fees.



Other revenues decreased $55 million or 13 percent to $362 million as the $81 million charge related to AEIDC previously mentioned was partially offset by higher network, merchant, publishing, and insurance-related revenues.

Interest income rose $386 million or 26 percent to $1.9 billion, reflecting an increase in cardmember lending finance revenue , which grew $368 million or 30 percent due to a 30 percent increase in average worldwide cardmember lending balances.



Interest expense increased $281 million or 39 percent to $1.0 billion, reflecting a $126 million or 40 percent increase in cardmember lending interest expense and a $155 million or 38 percent increase in charge card and other interest expense due to increased debt funding levels in support of growth in loan and receivable balances, respectively, and higher effective costs of funds.



Expenses



Consolidated expenses were $4.5 billion, up $379 million or 9 percent from $4.2 billion for the same period in 2006. The increase in the three months ended September 30, 2007, was primarily driven by higher marketing, promotion, rewards and cardmember services expenses and increased human resources expenses, partially offset by lower other expenses. Consolidated expenses for the three months ended September 30, 2007 and 2006, also included $10 million and $11 million, respectively, of reengineering costs related to restructuring efforts primarily within the Company’s corporate travel business.



Marketing, promotion, rewards and cardmember services expenses increased $224 million or 14 percent to $1.8 billion compared to a year ago, due to higher volume-related rewards costs and greater marketing and promotion costs. The higher rewards costs continued to reflect volume growth, a higher redemption rate, and strong cardmember program participation. Marketing expenses continued to reflect card acquisition, brand and loyalty oriented programs, with an increased emphasis on the Company’s non-U.S. activities.



Human resources expenses increased $139 million or 11 percent to $1.4 billion due to a higher level of employees, merit increases, and larger benefit costs. Reengineering costs for both the three months ended September 30, 2007 and 2006, included $9 million of severance, all of which was restructuring-related.



Other expenses decreased $3 million or 1 percent to $339 million as a decrease in underlying expenses was partially offset by the $33 million gain related to the sales of the Company’s card and merchant-related activities in Malaysia and Indonesia during the third quarter of 2006.



Provisions for Losses and Benefits



Consolidated provisions for losses and benefits increased $195 million or 25 percent over last year to $982 million, reflecting increases in the cardmember lending and charge card provisions.



Charge card provision for losses increased $22 million or 9 percent to $279 million primarily due to higher business volumes.



Cardmember lending provision for losses increased $167 million or 41 percent to $579 million due to increased loan volumes and higher write-off and delinquency rates within the United States, which have risen after the unusually low rates in 2006 that followed the enactment of the October 2005 U.S. bankruptcy legislation.



Income Taxes



The effective tax rate was 24 percent and 29 percent for the three months ended September 30, 2007 and 2006, respectively. The effective tax rate for the three months ended September 30, 2007, reflected $75 million in tax benefits principally related to the resolution of prior years’ tax items. The effective tax rate for the three months ended September 30, 2006, reflected the favorable impacts of a net interest receivable from the Internal Revenue Service (IRS), finalization of the 2005 U.S. federal tax return, and an adjustment of 2006 estimated state taxes.

Discontinued Operations



(Loss) Income from discontinued operations, net of tax, was ($7) million and $33 million for the three months ended September 30, 2007 and 2006, respectively. Loss from discontinued operations, net of tax, for the three months ended September 30, 2007, primarily related to AEB’s results which include compliance-related remediation costs, as well as costs related to the Tax and Business Services (TBS) business which was sold during the third quarter of 2005. Income from discontinued operations, net of tax, for the three months ended September 30, 2006, primarily related to AEB results and a tax benefit related to Ameriprise Financial, Inc. (Ameriprise) upon finalization of the Company’s 2005 U.S. federal tax return.

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Username Comments
graham 
newbie
Posts: 31

Reg: 02-16-09

03-16-09 12:06 PM - Post#2510    
    In response to DailyStocks_admin

From another board:

WHY AMERICAN EXPRESS IS A BUY

WHY BUY

Warren owns 13.1% of AXP---COMMON—His largest holdings in order are Coke,
Wells Fargo, Burlington Northern, Procter & Gamble, Conoco, Kraft, and then American Express
Current report 2/09 Q4 2008. The fundamentals are pe of 6.5 with normal median 20. The 12 price is minus 2.6 billion on reserves (1.40 )
restructuring cost savings 1.8 Billion (or 1.10 share after tax) plus 800 million annually for litigation (.55 share). 12 minus 3 is 9.00 share against 08
Earnings of 2.33. pe of 4.2 vs. median pe of 20. Book is 10.15
Chenault has been with company since 1981. He has been CEO since 2001.
He was instrumental in turning around AXP travel business where share price went from 11-100 share.
If tons of delinquent credit cards pile up... AXP can offset the losses with restructuring
and earning power (albeit volume will be down). AXP a TARP bank can borrow money
@ 1.44 and lends out at 18%. According
to latest 3-9-09 TranUnion report on credit card delinquencies shows credit card defaults
are 11% less in 08 than they were in 07, stating consumers are more consciences with all
there losses and try to preserve what they have. With all they hype going on.... 93% of the
U.S. population is current on housing payments (Equifax January report). The media is overdoing this.
AXP as of end 08 has 98.5 million cards in force
GNS (global network) issues 25 million of the 98.5 million they assume ALL credit risk (pg 10 2008 10k). It has 11% market share and because they
do in house-they can mitigate risk faster than competition. Last qtr they were down 36% net eps but had many one
time charges such as employment dismissal compensation and building up of credit
reserve loss.

Also the brand name alone on this franchise is probaly worth 16 share
Dating back to 1880 . Risks low, Rewards High

This is one of the best type of companies to own at historical net margins 11.5% and ROE 24%
Keep in mind all you hear about in the news is bankruptcy, bankruptcy, etc
The fact is 93% of homeowners are current (Sheila Barr/Equifax)


Warren stated on 3 hour interview AXP is one hell of a buy (it was 10.60 @ the time)
Competition is in a weakened state (more so than AXP) .(visa/mc do receive TARP)

Visa gives them 70 million per quarter ending 4th qtr 2011
Master card gives them 150 million each quarter ending 2nd qtr 2011

LENDING IT OUT 18% getting Fed discount rate of 1.4%

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