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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

[X]         QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2015

or

[ ]         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from                  to                 

Commission file number 1-7657

AMERICAN EXPRESS COMPANY

(Exact name of registrant as specified in its charter)

 

New York				13-4922250
(State or other jurisdiction of				(I.R.S. Employer Identification No.)
incorporation or organization)

 

200 Vesey Street, New York, NY				10285
(Address of principal executive offices)				(Zip Code)

Registrant’s telephone number, including area code                     (212) 640-2000            

None

 

Former name, former address and former fiscal year, if changed since last report.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X             No         

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes X             No         

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes                 No  X 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class				Outstanding at July 24, 2015
Common Shares (par value $0.20 per share)				1,001,283,308 shares

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AMERICAN EXPRESS COMPANY

FORM 10-Q

INDEX

 

							Page No.
Part I.		Financial Information
		Item 1.		Financial Statements
				Consolidated Statements of Income – Three Months Ended June 30, 2015 and 2014			1
				Consolidated Statements of Income – Six Months Ended June 30, 2015 and 2014			2
				Consolidated Statements of Comprehensive Income – Three and Six Months Ended June 30, 2015 and 2014			3
				Consolidated Balance Sheets – June 30, 2015 and December 31, 2014			4
				Consolidated Statements of Cash Flows – Six Months Ended June 30, 2015 and 2014			5
				Notes to Consolidated Financial Statements			6
		Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			33
		Item 3.		Quantitative and Qualitative Disclosures about Market Risk			72
		Item 4.		Controls and Procedures			72
Part II.		Other Information
		Item 1.		Legal Proceedings			76
		Item 1A.		Risk Factors			77
		Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			79
		Item 5.		Other Information			80
		Item 6.		Exhibits			80
		Signatures					81
		Exhibit Index					E-1

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AMERICAN EXPRESS COMPANY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

Three Months Ended June 30, (Millions, except per share amounts)		2015				2014
Revenues
Non-interest revenues
Discount revenue		$	4,946			$	4,919
Net card fees			667				687
Travel commissions and fees			95				500
Other commissions and fees			632				624
Other			521				585
Total non-interest revenues			6,861				7,315
Interest income
Interest on loans			1,776				1,696
Interest and dividends on investment securities			41				45
Deposits with banks and other			20				18
Total interest income			1,837				1,759
Interest expense
Deposits			109				91
Long-term debt and other			305				352
Total interest expense			414				443
Net interest income			1,423				1,316
Total revenues net of interest expense			8,284				8,631
Provisions for losses
Charge card			165				183
Card Member loans			285				282
Other			17				24
Total provisions for losses			467				489
Total revenues net of interest expense after provisions for losses			7,817				8,142
Expenses
Marketing and promotion			761				959
Card Member rewards			1,799				1,773
Card Member services and other			242				192
Salaries and employee benefits			1,250				1,658
Other, net			1,535				1,248
Total expenses			5,587				5,830
Pretax income			2,230				2,312
Income tax provision			757				783
Net income		$	1,473			$	1,529
Earnings per Common Share (Note 15): (a)
Basic		$	1.43			$	1.44
Diluted		$	1.42			$	1.43
Average common shares outstanding for earnings per common share:
Basic			1,009				1,052
Diluted			1,013				1,058
Cash dividends declared per common share		$	0.29			$	0.26

 

(a)

Represents net income less (i) earnings allocated to participating share awards of $11 million and $12 million for the three months ended June 30, 2015 and 2014, respectively, and (ii) dividends on preferred shares of $20 million and nil for the three months ended June 30, 2015 and 2014, respectively.

See Notes to Consolidated Financial Statements.

 

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AMERICAN EXPRESS COMPANY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

Six Months Ended June 30, (Millions, except per share amounts)		2015				2014
Revenues
Non-interest revenues
Discount revenue		$	9,606			$	9,539
Net card fees			1,334				1,361
Travel commissions and fees			184				923
Other commissions and fees			1,251				1,242
Other			989				1,086
Total non-interest revenues			13,364				14,151
Interest income
Interest on loans			3,571				3,407
Interest and dividends on investment securities			82				91
Deposits with banks and other			41				37
Total interest income			3,694				3,535
Interest expense
Deposits			212				185
Long-term debt and other			612				697
Total interest expense			824				882
Net interest income			2,870				2,653
Total revenues net of interest expense			16,234				16,804
Provisions for losses
Charge card			339				398
Card Member loans			520				532
Other			28				44
Total provisions for losses			887				974
Total revenues net of interest expense after provisions for losses			15,347				15,830
Expenses
Marketing and promotion			1,370				1,546
Card Member rewards			3,439				3,355
Card Member services and other			503				414
Salaries and employee benefits			2,555				3,198
Other, net			2,934				2,797
Total expenses			10,801				11,310
Pretax income			4,546				4,520
Income tax provision			1,548				1,559
Net income		$	2,998			$	2,961
Earnings per Common Share (Note 15): (a)
Basic		$	2.92			$	2.78
Diluted		$	2.90			$	2.77
Average common shares outstanding for earnings per common share:
Basic			1,013				1,056
Diluted			1,018				1,062
Cash dividends declared per common share		$	0.55			$	0.49

 

(a)	Represents net income less (i) earnings allocated to participating share awards of $22 million and $24 million for the six months ended June 30, 2015 and 2014, respectively, and (ii) dividends on preferred shares of $20 million and nil for the six months ended June 30, 2015, and 2014, respectively.

See Notes to Consolidated Financial Statements.

 

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AMERICAN EXPRESS COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

		Three Months Ended June 30,								Six Months Ended June 30,
(Millions)		2015				2014				2015				2014
Net income		$	1,473			$	1,529			$	2,998			$	2,961
Other comprehensive (loss) income:
Net unrealized securities (losses) gains, net of tax: 2015, $(10) and $(11); 2014, $1 and $24			(20)				3				(20)				42
Foreign currency translation adjustments, net of tax: 2015, $(48) and $40; 2014, $(55) and $(78)			11				6				(244)				(28)
Net unrealized pension and other postretirement benefit gains, net of tax: 2015, $(3) and $16; 2014, $5 and $20			6				14				29				41
Other comprehensive (loss) income			(3)				23				(235)				55
Comprehensive income		$	1,470			$	1,552			$	2,763			$	3,016

See Notes to Consolidated Financial Statements.

 

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AMERICAN EXPRESS COMPANY

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

(Millions, except share data)		June 30, 2015				December 31, 2014
Assets
Cash and cash equivalents
Cash and due from banks		$	2,442			$	2,628
Interest-bearing deposits in other banks (includes securities purchased under resale agreements: 2015, $202; 2014, $204)			18,490				19,190
Short-term investment securities			139				470
Total cash and cash equivalents			21,071				22,288
Accounts receivable
Card Member receivables (includes gross receivables available to settle obligations of a consolidated variable interest entity: 2015, $6,231; 2014, $7,025), less reserves: 2015, $420; 2014, $465			44,459				44,386
Other receivables, less reserves: 2015, $61; 2014, $61			2,805				2,614
Loans
Card Member loans (includes gross loans available to settle obligations of a consolidated variable interest entity: 2015, $27,973; 2014, $30,115), less reserves: 2015, $1,132; 2014, $1,201			67,823				69,184
Other loans, less reserves: 2015, $14; 2014, $12			1,012				920
Investment securities			4,584				4,431
Premises and equipment, less accumulated depreciation and amortization: 2015, $6,560; 2014, $6,270			4,016				3,938
Other assets (includes restricted cash of consolidated variable interest entities: 2015, $1,578; 2014, $64)			11,382				11,342
Total assets		$	157,152			$	159,103
Liabilities and Shareholders’ Equity
Liabilities
Customer deposits		$	47,166			$	44,171
Travelers Cheques and other prepaid products			3,225				3,673
Accounts payable			11,056				11,300
Short-term borrowings			4,486				3,480
Long-term debt (includes debt issued by consolidated variable interest entities: 2015, $16,423; 2014, $19,516)			52,740				57,955
Other liabilities			16,594				17,851
Total liabilities			135,267				138,430
Contingencies (Note 8)
Shareholders’ Equity
Preferred shares, $1.662/3 par value, authorized 20 million shares; issued and outstanding 1,600 shares as of June 30, 2015, and 750 shares as of December 31, 2014			—				—
Common shares, $0.20 par value, authorized 3.6 billion shares; issued and outstanding 1,002 million shares as of June 30, 2015, and 1,023 million shares as of December 31, 2014			201				205
Additional paid-in capital			13,639				12,874
Retained earnings			10,199				9,513
Accumulated other comprehensive loss
Net unrealized securities gains, net of tax: 2015, $41; 2014, $52			76				96
Foreign currency translation adjustments, net of tax: 2015, $(277); 2014, $(317)			(1,743)				(1,499)
Net unrealized pension and other postretirement benefit losses, net of tax: 2015, $(207); 2014, $(223)			(487)				(516)
Total accumulated other comprehensive loss			(2,154)				(1,919)
Total shareholders’ equity			21,885				20,673
Total liabilities and shareholders’ equity		$	157,152			$	159,103

See Notes to Consolidated Financial Statements.

 

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AMERICAN EXPRESS COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

Six Months Ended June 30 (Millions)		2015				2014
Cash Flows from Operating Activities
Net income		$	2,998			$	2,961
Adjustments to reconcile net income to net cash provided by operating activities:
Provisions for losses			887				974
Depreciation and amortization			514				515
Deferred taxes and other			145				(397)
Stock-based compensation			140				164
Changes in operating assets and liabilities, net of effects of acquisitions and dispositions:
Other receivables			(264)				(701)
Other assets			1,616				752
Accounts payable and other liabilities			(1,321)				1,142
Travelers Cheques and other prepaid products			(414)				(525)
Net cash provided by operating activities			4,301				4,885
Cash Flows from Investing Activities
Sales of available-for-sale investment securities			—				80
Maturities and redemptions of available-for-sale investment securities			991				525
Purchase of investments			(1,212)				(443)
Net increase in Card Member receivables/loans			(569)				(1,153)
Purchase of premises and equipment, net of sales: 2015, $32; 2014, nil			(537)				(546)
Business acquisitions, net of cash acquired			(74)				(109)
Net (increase) decrease in restricted cash			(1,529)				70
Net cash used in investing activities			(2,930)				(1,576)
Cash Flows from Financing Activities
Net increase in customer deposits			3,017				371
Net increase (decrease) in short-term borrowings			1,033				(1,654)
Issuance of long-term debt			3,457				5,955
Principal payments on long-term debt			(8,476)				(6,661)
Issuance of American Express preferred shares			841				—
Issuance of American Express common shares			143				193
Repurchase of American Express common shares			(1,971)				(2,091)
Dividends paid			(533)				(489)
Net cash used in financing activities			(2,489)				(4,376)
Effect of foreign currency exchange rates on cash and cash equivalents			(99)				11
Net decrease in cash and cash equivalents			(1,217)				(1,056)
Cash and cash equivalents at beginning of period			22,288				19,486
Cash and cash equivalents at end of period		$	21,071			$	18,430
Supplemental cash flow information
Non-cash financing activities
Gain on business travel joint venture transaction		$	—			$	626

See Notes to Consolidated Financial Statements

 

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.	Basis of Presentation

The Company

American Express Company (the Company) is a global services company that provides customers with access to products, insights and experiences that enrich lives and build business success. The Company’s principal products and services are charge and credit payment card products and travel-related services offered to consumers and businesses around the world. Business travel-related services are offered through the non-consolidated joint venture, American Express Global Business Travel (GBT JV). Prior to July 1, 2014, these business travel operations were wholly owned. The Company also focuses on generating alternative sources of revenue on a global basis in areas such as online and mobile payments and fee-based services. The Company’s various products and services are sold globally to diverse customer groups, including consumers, small businesses, mid-sized companies and large corporations. These products and services are sold through various channels, including direct mail, online applications, targeted direct and third-party sales forces and direct response advertising.

The accompanying Consolidated Financial Statements should be read in conjunction with the consolidated financial statements incorporated by reference in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 (the Annual Report). If not materially different, certain footnote disclosures included in the Annual Report have been omitted from this Quarterly Report on Form 10-Q.

The interim consolidated financial information in this report has not been audited. In the opinion of management, all adjustments, which consist of normal recurring adjustments necessary for a fair statement of the interim period consolidated financial information, have been made. Results of operations reported for interim periods are not necessarily indicative of results for the entire year.

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosures of contingent assets and liabilities. These accounting estimates reflect the best judgment of management, but actual results could differ.

In the first quarter of 2015, the Company changed the classification related to certain payments to partners, reducing both discount revenue and marketing and promotion expense. Prior period amounts have been reclassified to conform to the current period presentation. None of the prior period financial statements were materially misstated from this misclassification.

Recently Issued Accounting Standards

Accounting Standards Update (ASU) No. 2014-09, Revenue Recognition (Topic 606): Revenue from Contracts with Customers was issued on May 28, 2014. The guidance establishes the principles to apply to determine the amount and timing of revenue recognition, specifying the accounting for certain costs related to revenue, and requiring additional disclosures about the nature, amount, timing and uncertainty of revenues and related cash flows. The guidance supersedes most of the current revenue recognition requirements, and will be effective January 1, 2018, with early adoption as of January 1, 2017, permitted. The Company continues to evaluate the impact this guidance, including the method of implementation, will have on its financial position, results of operations and cash flows, among other items.

 

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

ASU No. 2014-01, Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects was issued on January 15, 2014. Provided certain conditions are met, this standard permits entities to account for investments in Qualified Affordable Housing projects using the proportional amortization method. The standard also requires new disclosures about all investments in Qualified Affordable Housing projects irrespective of the method used to account for the investments. The Company has adopted this guidance in the first quarter of 2015 and has elected not to use the proportional amortization method, but continues to account for these investments using the equity method of accounting, which has been the Company’s historical practice.

During the three and six months ended June 30, 2015, the Company recognized equity method losses related to Qualified Affordable Housing of $11 million and $20 million, respectively, which were recognized in Other, net expenses; and associated tax credits of $12 million and $24 million, respectively, which were recognized in Income tax provision. Similarly, during the three and six months ended June 30, 2014, the Company recognized equity method losses of $24 million and $32 million, respectively; and associated tax credits of $9 million and $18 million, respectively. The carrying value of these investments was $502 million and $522 million as of June 30, 2015 and December 31, 2014, respectively. In addition, as of June 30, 2015, the Company is contractually committed to provide additional funding related to certain of these investments, resulting in a liability of $106 million for unfunded commitments reported in Other liabilities, which is expected to be paid between 2015 and 2023.

 

2.	Divestitures

On June 30, 2014, the Company completed a transaction to establish a non-consolidated joint venture comprising the former Global Business Travel (GBT) operations of the Company and an external cash investment. As a result of this transaction, the Company deconsolidated the GBT net assets, effective June 30, 2014, and began accounting for the GBT JV as an equity method investment reported in Other assets within the Consolidated Balance Sheet. Prior to the deconsolidation, the carrying amount of GBT’s assets and liabilities were not material to the Company’s financial position and its operations were reported within the Global Commercial Services (GCS) segment.

 

 

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

3.	Accounts Receivable and Loans

The Company’s charge and lending payment card products result in the generation of Card Member receivables and Card Member loans, respectively.

Accounts receivable by segment as of June 30, 2015 and December 31, 2014, consisted of:

 

 

(a)

Includes $6.2 billion and $7.0 billion of gross Card Member receivables available to settle obligations of a consolidated variable interest entity (VIE) as of June 30, 2015 and December 31, 2014, respectively.

 

(b)

Includes $341 million and $636 million due from airlines, of which Delta Air Lines comprises $272 million and $606 million as of June 30, 2015 and December 31, 2014, respectively.

 

(c)

Includes receivables primarily related to the Company’s International Currency Card portfolios.

 

(d)

Includes approximately $12.9 billion and $13.3 billion of Card Member receivables outside the U.S. as of June 30, 2015 and December 31, 2014, respectively.

 

(e)

Other receivables primarily represent amounts related to (i) certain merchants for billed discount revenue and (ii) Global Network Services (GNS) partner banks for items such as royalty and franchise fees. Other receivables are presented net of reserves for losses of $61 million as of both June 30, 2015 and December 31, 2014.

Loans by segment as of June 30, 2015 and December 31, 2014, consisted of:

 

 

(a)

Includes approximately $28.0 billion and $30.1 billion of gross Card Member loans available to settle obligations of a consolidated VIE as of June 30, 2015 and December 31, 2014, respectively.

 

(b)

Other loans primarily represent loans to merchants and a store card loan portfolio. Other loans are presented net of reserves for losses of $14 million and $12 million as of June 30, 2015 and December 31, 2014, respectively.

 

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Card Member Loans and Card Member Receivables Aging

Generally, a Card Member account is considered past due if payment is not received within 30 days after the billing statement date. The following table presents the aging of Card Member loans and receivables as of June 30, 2015 and December 31, 2014:

 

 

(a)

For Card Member receivables in GCS, delinquency data is tracked based on days past billing status rather than days past due. A Card Member account is considered 90 days past billing if payment has not been received within 90 days of the Card Member’s billing statement date. In addition, if the Company initiates collection procedures on an account prior to the account becoming 90 days past billing, the associated Card Member receivable balance is classified as 90 days past billing. These amounts are shown above as 90+ Days Past Due for presentation purposes.

 

(b)

Delinquency data for periods other than 90 days past billing is not available due to system constraints. Therefore, such data has not been utilized for risk management purposes. The balances that are current to 89 days past due can be derived as the difference between the Total and the 90+ Days Past Due balances.

 

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Credit Quality Indicators for Card Member Loans and Receivables

The following tables present the key credit quality indicators as of or for the six months ended June 30:

 

 

(a)

The Company presents a net write-off rate based on principal losses only (i.e., excluding interest and/or fees) to be consistent with industry convention. In addition, because the Company considers uncollectible interest and/or fees in estimating its reserves for credit losses, a net write-off rate including principal, interest and/or fees is also presented. The six months ended June 30, 2015, reflects the impact of a change in the timing of charge-offs for Card Member loans and receivables in certain modification programs from 180 days past due to 120 days past due, which was fully recognized in the three months ended March 31, 2015.

Impaired Card Member Loans and Receivables

Impaired loans and receivables are individual larger balance or homogeneous pools of smaller balance loans and receivables for which it is probable that the Company will be unable to collect all amounts due according to the original contractual terms of the Card Member agreement. In certain cases these Card Member loans and receivables are included in one of the Company’s various modification programs. Beginning January 1, 2015, on a prospective basis the Company continues to classify Card Member accounts that have exited a modification program as a Troubled Debt Restructuring (TDR), with such accounts identified as “Out of Program TDRs.”

 

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following table provides additional information with respect to the Company’s impaired Card Member loans (which are not significant for GCS) and impaired Card Member receivables (which are not significant for International Card Services (ICS) and GCS) as of June 30, 2015 and December 31, 2014:

 

 

(a)

The Company’s policy is generally to accrue interest through the date of write-off (generally 180 days past due). The Company establishes reserves for interest that it believes will not be collected. Amounts presented exclude loans classified as a TDR.

 

(b)

Non-accrual loans not in modification programs include certain Card Member loans placed with outside collection agencies for which the Company has ceased accruing interest.

 

(c)

Accounts classified as a TDR include $28 million and $34 million that are non-accrual and $18 million and $26 million that are over 90 days past due and accruing interest as of June 30, 2015 and December 31, 2014, respectively.

 

(d)

In Program TDRs include Card Member accounts that are currently enrolled in a modification program.

 

(e)

Out of Program TDRs include $60 million of Card Member accounts that have successfully completed a modification program and $24 million of Card Member accounts that were not in compliance with the terms of the modification programs.

 

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following table provides information with respect to the Company’s average balances of, and interest income recognized from, impaired Card Member loans (which are not significant for GCS) and the average balances of impaired Card Member receivables (which are not significant for ICS and GCS) for the three and six months ended June 30:

 

 

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Card Member Loans and Receivables Modified as TDRs

The following table provides additional information with respect to the U.S. Card Services (USCS) Card Member loans and receivables modified as TDRs for the three and six months ended June 30, 2015 and 2014. The ICS Card Member loans and receivables modifications were not significant, and the Company does not offer modification programs for its GCS Card Member receivables and therefore, are not included in the following TDR disclosures.

 

 

(a)

Represents the outstanding balance immediately prior to modification. The outstanding balance includes principal, fees and accrued interest on Card Member loans and principal and fees on Card Member receivables. Modifications did not reduce the principal balance.

 

(b)

For Card Member loans, there have been no payment term extensions.

 

(c)

The Company does not offer interest rate reduction programs for Card Member receivables as the receivables are non-interest bearing.

 

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following table provides information for the three and six months ended June 30, 2015 and 2014, with respect to the USCS Card Member loans and receivables modified as TDRs that subsequently defaulted within 12 months of modification. A Card Member is considered in default of a modification program after one and up to two consecutive missed payments, depending on the terms of the modification program. For all Card Members that defaulted from a modification program, the probability of default is factored into the reserves for Card Member loans and receivables.

 

 

(a)

The outstanding balance upon default includes principal, fees and accrued interest on Card Member loans and principal and fees on Card Member receivables.

 

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

4.	Reserves for Losses

Reserves for losses relating to Card Member loans and receivables represent management’s best estimate of the probable inherent losses in the Company’s outstanding portfolio of loans and receivables, as of the balance sheet date. Management’s evaluation process requires certain estimates and judgments.

Changes in Card Member Receivables Reserve for Losses

The following table presents changes in the Card Member receivables reserve for losses for the six months ended June 30:

 

 

(a)

Provisions for principal and fee reserve components.

 

(b)

Consists of principal and fee components, less recoveries of $201 million and $180 million, including net write-offs from TDRs of $42 million and $8 million, for the six months ended June 30, 2015 and 2014, respectively.

 

(c)

For the six months ended June 30, 2015, includes foreign currency translation adjustments of $(7) million, and other adjustments of $(7) million. For the six months ended June 30, 2014, includes foreign currency translation adjustments of nil, other adjustments of $(5) million, and an adjustment related to reserves for card-related fraud losses of $(7) million, which were reclassified to other liabilities in the first quarter of 2014.

Card Member Receivables Evaluated Individually and Collectively for Impairment

The following table presents Card Member receivables evaluated individually and collectively for impairment, and related reserves, as of June 30, 2015 and December 31, 2014:

 

 

(a)

Represents receivables modified as a TDR and related reserves.

 

(b)

The reserves include the quantitative results of analytical models that are specific to individual pools of receivables, and reserves for internal and external qualitative risk factors that apply to receivables that are collectively evaluated for impairment.

 

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Changes in Card Member Loans Reserve for Losses

The following table presents changes in the Card Member loans reserve for losses for the six months ended June 30:

 

 

(a)

Provisions for principal, interest and fee reserve components.

 

(b)

Consists of principal write-offs, less recoveries of $212 million and $216 million, including net write-offs/(recoveries) from TDRs of $22 million and $(2) million, for the six months ended June 30, 2015 and 2014, respectively. Recoveries of interest and fees were de minimis.

 

(c)

For the six months ended June 30, 2015, includes foreign currency translation adjustments of $(8) million, and other adjustments of $6 million. For the six months ended June 30, 2014, includes foreign currency translation adjustments of $(1) million, other adjustments of $9 million, and an adjustment related to reserves for card-related fraud losses of $(6) million, which were reclassified to other liabilities in the first quarter of 2014.

Card Member Loans Evaluated Individually and Collectively for Impairment

The following table presents Card Member loans evaluated individually and collectively for impairment, and related reserves, as of June 30, 2015 and December 31, 2014:

 

 

(a)

Represents loans modified as a TDR and related reserves.

 

(b)

Represents current loans and loans less than 90 days past due, loans over 90 days past due and accruing interest, and non-accrual loans. The reserves include the quantitative results of analytical models that are specific to individual pools of loans and reserves for internal and external qualitative risk factors that apply to loans that are collectively evaluated for impairment.

 

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

5.	Investment Securities

Investment securities principally include debt securities the Company classifies as available-for-sale and carries at fair value on the Consolidated Balance Sheets, with unrealized gains (losses) recorded in Accumulated Other Comprehensive Loss, net of income taxes. Realized gains and losses are recognized on a trade-date basis in results of operations upon disposition of the securities using the specific identification method.

The following is a summary of investment securities as of June 30, 2015 and December 31, 2014:

 

 

(a)

Represents mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae.

 

(b)

Other comprises investments in various mutual funds.

The following table provides information about the Company’s investment securities with gross unrealized losses and the length of time that individual securities have been in a continuous unrealized loss position as of June 30, 2015 and December 31, 2014:

 

The following table summarizes the gross unrealized losses due to temporary impairments by ratio of fair value to amortized cost as of June 30, 2015 and December 31, 2014:

 

 

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The gross unrealized losses are attributed to overall wider credit spreads for state and municipal securities, wider credit spreads for specific issuers, adverse changes in market benchmark interest rates, or a combination thereof, all as compared to those prevailing when the investment securities were acquired.

Overall, for the investment securities in gross unrealized loss positions (i) the Company does not intend to sell the investment securities, (ii) it is more likely than not that the Company will not be required to sell the investment securities before recovery of the unrealized losses, and (iii) the Company expects that the contractual principal and interest will be received on the investment securities. As a result, the Company recognized no other-than-temporary impairment during the periods presented.

Contractual maturities of investment securities with stated maturities as of June 30, 2015 were as follows:

 

 

(a)

Balances primarily represent investments in state and municipal obligations, and foreign government bonds and obligations.

The expected payments on state and municipal obligations and mortgage-backed securities may not coincide with their contractual maturities because the issuers have the right to call or prepay certain obligations.

Supplemental Information

Gross realized gains on the sales of investment securities, included in Other revenues, were nil for both the three and six months ended June 30, 2015, and $41 million and $80 million for the three and six months ended June 30, 2014, respectively. There were no realized losses during any of these periods of comparison.

 

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

6.	Asset Securitizations

The Company periodically securitizes Card Member receivables and loans arising from its card business through the transfer of those assets to securitization trusts. The trusts then issue securities to third-party investors, collateralized by the transferred assets.

The following table provides information on the restricted cash held by the American Express Issuance Trust II (the Charge Trust) and the American Express Credit Account Master Trust (the Lending Trust, and collectively, the Trusts) as of June 30, 2015 and December 31, 2014, included in Other assets on the Company’s Consolidated Balance Sheets:

 

These amounts relate to collections of Card Member receivables and loans to be used by the Trusts to fund future expenses and obligations, including interest paid on investor securities, credit losses and upcoming debt maturities.

American Express Travel Related Services Company, Inc. (TRS), which is a consolidated subsidiary of the Company, is the primary beneficiary of both Trusts. Excluding its consolidated subsidiaries, TRS owns approximately $1.2 billion of subordinated securities issued by the Lending Trust as of both June 30, 2015 and December 31, 2014.

Under the respective terms of the Charge Trust and the Lending Trust agreements, the occurrence of certain triggering events associated with the performance of the assets of each trust could result in payment of trust expenses, establishment of reserve funds, or in a worst-case scenario, early amortization of investor securities. During the six months ended June 30, 2015 and the year ended December 31, 2014, no such triggering events occurred.

 

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

7.	Customer Deposits

As of June 30, 2015 and December 31, 2014, customer deposits were categorized as interest bearing or non-interest bearing, as follows:

 

Customer deposits by deposit type as of June 30, 2015 and December 31, 2014, were as follows:

 

The scheduled maturities of certificates of deposit as of June 30, 2015, were as follows:

 

As of June 30, 2015 and December 31, 2014, certificates of deposit in denominations of $250,000 or more, in the aggregate, were as follows:

 

 

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

8.	Contingencies

The Company is involved in a number of legal proceedings concerning matters arising out of the conduct of its business activities and is periodically subject to governmental and regulatory examinations, information gathering requests, subpoenas, inquiries and investigations (collectively, governmental examinations). As of June 30, 2015, the Company and various of its subsidiaries were named as a defendant or were otherwise involved in numerous legal proceedings and governmental examinations in various jurisdictions, both in and outside the U.S. The Company discloses its material legal proceedings and governmental examinations under Part II, Item 1. “Legal Proceedings” in this Quarterly Report on Form 10-Q and Part I, Item 3. “Legal Proceedings” in the Annual Report (collectively, Legal Proceedings).

The Company has recorded liabilities for certain of its outstanding legal proceedings and governmental examinations. A liability is accrued when it is both (a) probable that a loss has occurred and (b) the amount of loss can be reasonably estimated. There may be instances in which an exposure to loss exceeds the accrued liability. The Company evaluates, on a quarterly basis, developments in legal proceedings and governmental examinations that could cause an increase or decrease in the amount of the liability that has been previously accrued, or a revision to the disclosed estimated range of possible losses, as applicable.

The Company’s legal proceedings range from cases brought by a single plaintiff to class actions with millions of putative class members. These legal proceedings, as well as governmental examinations, involve various lines of business of the Company and a variety of claims (including, but not limited to, common law tort, contract, antitrust and consumer protection claims), some of which present novel factual allegations and/or unique legal theories. While some matters pending against the Company specify the damages claimed by the plaintiff, many seek an unspecified amount of damages or are at very early stages of the legal process. Even when the amount of damages claimed against the Company are stated, the claimed amount may be exaggerated and/or unsupported. As a result, some matters have not yet progressed sufficiently through discovery and/or development of important factual information and legal issues to enable the Company to estimate an amount of loss or a range of possible loss.

Other matters have progressed sufficiently through discovery and/or development of important factual information and legal issues so that the Company is able to estimate an amount of loss or a range of possible loss. Accordingly, for those legal proceedings and governmental examinations disclosed or referred to in Legal Proceedings where a loss is reasonably possible in future periods, whether in excess of a related accrued liability or where there is no accrued liability, and for which the Company is able to estimate a range of possible loss, the current estimated range is zero to $370 million in excess of any accrued liability related to these matters. This aggregate range represents management’s estimate of possible loss with respect to these matters and is based on currently available information. This estimated range of possible loss does not represent the Company’s maximum loss exposure. The legal proceedings and governmental examinations underlying the estimated range will change from time to time and actual results may vary significantly from current estimates.

Based on its current knowledge, and taking into consideration its litigation-related liabilities, the Company believes it is not a party to, nor are any of its properties the subject of, any pending legal proceeding or governmental examination that would have a material adverse effect on the Company’s consolidated financial condition or liquidity. However, in light of the uncertainties involved in such matters, the ultimate outcome of a particular matter could be material to the Company’s operating results for a particular period depending on, among other factors, the size of the loss or liability imposed and the level of the Company’s earnings for that period.

 

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

9.	Derivatives and Hedging Activities

The Company uses derivative financial instruments (derivatives) to manage exposures to various market risks. These instruments derive their value from an underlying variable or multiple variables, including interest rate, foreign exchange rates, and equity index or price, and are carried at fair value on the Consolidated Balance Sheets. These instruments enable end users to increase, reduce or alter exposure to various market risks and, for that reason, are an integral component of the Company’s market risk management. The Company does not engage in derivatives for trading purposes.

In relation to the Company’s credit risk, under the terms of the derivative agreements it has with its various counterparties, the Company is not required to either immediately settle any outstanding liability balances or post collateral upon the occurrence of a specified credit risk-related event. Based on the assessment of credit risk of the Company’s derivative counterparties as of June 30, 2015 and December 31, 2014, the Company does not have derivative positions that warrant credit valuation adjustments.

The following table summarizes the total fair value, excluding interest accruals, of derivative assets and liabilities as of June 30, 2015 and December 31, 2014:

 

 

(a)

Includes foreign currency derivatives embedded in certain operating agreements.

 

(b)

Represents the offsetting of derivative instruments and the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) arising from derivative instrument(s) executed with the same counterparty under an enforceable master netting arrangement. From time to time, the Company also receives non-cash collateral from counterparties in the form of security interests in U.S. Treasury securities, which reduces the Company’s risk exposure, but does not reduce the net exposure on the Company’s Consolidated Balance Sheets. The Company had such non-cash collateral as of December 31, 2014 with a fair value of $91 million, none of which was sold or repledged. The Company did not have any such non-cash collateral as of June 30, 2015. Additionally, the Company posted $126 million and $114 million as of June 30, 2015 and December 31, 2014, respectively, as initial margin on its centrally cleared interest rate swaps; such amounts are recorded within Other receivables on the Company’s Consolidated Balance Sheets and are not netted against the derivative balances.

 

(c)

Represents the amount of netting of derivative assets and derivative liabilities executed with the same counterparty under an enforceable master netting arrangement.

 

(d)

The Company has no individually significant derivative counterparties and therefore, no significant risk exposure to any single derivative counterparty. The total net derivative assets and derivative liabilities are presented within Other assets and Other liabilities on the Company’s Consolidated Balance Sheets.

A majority of the Company’s derivative assets and liabilities as of June 30, 2015 and December 31, 2014 are subject to master netting agreements with its derivative counterparties. In addition, the Company has no derivative amounts subject to enforceable master netting arrangements that are not offset on the Company’s Consolidated Balance Sheets.

 

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Fair Value Hedges

Interest Rate Contracts

The Company is exposed to interest rate risk associated with its fixed-rate long-term debt. The Company uses interest rate swaps to economically convert certain fixed-rate debt obligations to floating-rate obligations at the time of issuance. As of June 30, 2015 and December 31, 2014, the Company hedged $18.1 billion and $17.6 billion, respectively, of its fixed-rate debt to floating-rate debt using interest rate swaps.

Total Return Contract

The Company hedged its exposure to changes in the fair value of its equity investment in Industrial and Commercial Bank of China (ICBC) in local currency. The Company used a total return contract (TRC) to transfer its exposure to its derivative counterparty. On July 18, 2014, the Company sold its remaining shares in ICBC and terminated the TRC.

The following table summarizes the impact on the Consolidated Statements of Income associated with the Company’s fair value hedges for the three and six months ended June 30:

 

The Company also recognized a net reduction in interest expense on long-term debt of $71 million and $74 million for the three months ended June 30, 2015 and 2014, respectively, and $140 million and $143 million for the six months ended June 30, 2015 and 2014, respectively, primarily related to the net settlements (interest accruals) on the Company’s interest rate derivatives designated as fair value hedges.

Net Investment Hedges

The effective portion of the gain or (loss) on net investment hedges, net of taxes, recorded in Accumulated Other Comprehensive Loss as part of the cumulative translation adjustment was $(34) million and $(116) million for the three months ended June 30, 2015 and 2014, respectively, and $161 million and $(133) million for the six months ended June 30, 2015 and 2014, respectively, with any ineffective portion recognized in Other expenses during the period of change. During the three months ended June 30, 2015 and 2014, the Company reclassified nil and $(7) million, respectively, and nil and $9 million for the six months ended June 30, 2015 and 2014, respectively, from Accumulated Other Comprehensive Loss to earnings as a component of Other expenses. Ineffectiveness associated with net investment hedges of $1 million was recognized as a component of Other expenses for the three months and six months ended June 30, 2015.

 

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following table summarizes the impact on the Consolidated Statements of Income associated with the Company’s derivatives not designated as hedges for the three and six months ended June 30:

 

 

(a)

Foreign exchange contracts include forwards and embedded foreign currency derivatives.

 

10.	Fair Values

Financial Assets and Financial Liabilities Carried at Fair Value

The following table summarizes the Company’s financial assets and financial liabilities measured at fair value on a recurring basis, categorized by GAAP’s valuation hierarchy, as of June 30, 2015 and December 31, 2014:

 

 

(a)

Refer to Note 5 for the fair values of investment securities and to Note 9 for the fair values of derivative assets and liabilities, on a further disaggregated basis.

 

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following table summarizes the estimated fair values of the Company’s financial assets and financial liabilities that are not required to be carried at fair value on a recurring basis, as of June 30, 2015 and December 31, 2014. The fair values of these financial instruments are estimates based upon the market conditions and perceived risks as of June 30, 2015 and December 31, 2014, and require management judgment. These figures may not be indicative of future fair values, nor can the fair value of the Company be estimated by aggregating the amounts presented.

 

 

(a)

Reflects time deposits.

 

(b)

Includes accounts receivable (including fair values of Card Member receivables of $6.2 billion and $7.0 billion held by a consolidated VIE as of June 30, 2015 and December 31, 2014, respectively), restricted cash and other miscellaneous assets.

 

(c)

Includes fair values of Card Member loans of $27.9 billion and $29.9 billion, and long-term debt of $16.5 billion and $19.5 billion held by a consolidated VIE as of June 30, 2015 and December 31, 2014, respectively.

 

(d)

Presented as a component of customer deposits on the Consolidated Balance Sheets.

Nonrecurring Fair Value Measurements

The Company has certain assets that are subject to measurement at fair value on a nonrecurring basis. For these assets, measurement at fair value in periods subsequent to their initial recognition is applicable if determined to be impaired. During the six months ended June 30, 2015 and during the year ended December 31, 2014, the Company did not have any material assets that were measured at fair value due to impairment.

 

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

11.	Guarantees

The Company provides Card Member protection plans that cover losses associated with purchased products, as well as certain other guarantees and indemnifications in the ordinary course of business.

In relation to its maximum potential undiscounted future payments as shown in the table that follows, to date the Company has not experienced any significant losses related to guarantees or indemnifications. The Company’s initial recognition of these instruments is at fair value. In addition, the Company establishes reserves when a loss is probable and the amount can be reasonably estimated.

The following table provides information related to such guarantees and indemnifications as of June 30, 2015 and December 31, 2014:

 

 

(a)

Represents the notional amounts that could be lost under the guarantees and indemnifications if there were a total default by the guaranteed or indemnified parties. The maximum potential undiscounted future payments for Merchant Protection are measured using management’s best estimate of maximum exposure based on all eligible claims in relation to annual billed business volumes.

 

(b)

Included in Other liabilities on the Company’s Consolidated Balance Sheets.

 

(c)

Primarily includes guarantees related to the Company’s purchase protection, real estate and business dispositions.

 

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

12.	Changes In Accumulated Other Comprehensive Loss

Accumulated Other Comprehensive Loss is comprised of items that have not been recognized in earnings but may be recognized in earnings in the future when certain events occur. Changes in each component for the three and six months ended June 30, 2015 and 2014 were as follows:

 

 

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following table presents the effects of reclassifications out of Accumulated Other Comprehensive Loss and into the Consolidated Statements of Income for the three and six months ended June 30, 2015:

 

 

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

13.	Non-Interest Revenue and Expense Detail

The following is a detail of Other commissions and fees:

 

 

(a)

Other primarily includes revenues from fees related to Membership Rewards programs.

The following is a detail of Other revenues:

 

 

(a)

Other includes revenues arising from net revenue earned on cross-border Card Member spending, merchant-related fees, insurance premiums earned from Card Member travel and other insurance programs, Travelers Cheques-related revenues, revenues related to the GBT JV transition services agreement, earnings from equity method investments (including the GBT JV) and other miscellaneous revenue and fees.

The following is a detail of Other expenses:

 

 

(a)

Beginning January 1, 2015, merchant-related fraud losses are reported within Other expenses.

 

(b)

Other expense includes general operating expenses, gains (losses) on sale of assets or businesses not classified as discontinued operations, litigation, certain internal and regulatory review-related reimbursements and insurance costs or settlements, certain Loyalty Partner-related expenses and foreign currency-related gains and losses (including the favorable impact from the reassessment of the functional currency of certain UK legal entities in the six months ended June 30, 2015).

 

 

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

14.	Income Taxes

The effective tax rate was 33.9 percent and 34.0 percent for the three and six months ended June 30, 2015, respectively, and 33.9 percent and 34.5 percent for the three and six months ended June 30, 2014, respectively.

The tax rates for all periods reflect the level of pretax income in relation to recurring permanent tax benefits and geographic mix of business.

The Company is under continuous examination by the Internal Revenue Service (IRS) and tax authorities in other countries and states in which the Company has significant business operations. The tax years under examination and open for examination vary by jurisdiction. The IRS has completed its field examination of the Company’s federal tax returns for years through 2007; however, refund claims for certain years continue to be reviewed by the IRS. In addition, the Company is currently under examination by the IRS for the years 2008 through 2011.

The Company believes it is reasonably possible that its unrecognized tax benefits could decrease within the next 12 months by as much as $448 million principally as a result of potential resolutions of prior years’ tax items with various taxing authorities. The prior years’ tax items include unrecognized tax benefits relating to the deductibility of certain expenses or losses and the attribution of taxable income to a particular jurisdiction or jurisdictions. Of the $448 million of unrecognized tax benefits, approximately $306 million relates to amounts that if recognized would be recorded in shareholders’ equity and would not impact the Company’s results of operations or its effective tax rate.

 

15.	Earnings Per Common Share (EPS); Preferred Shares

EPS

The computations of basic and diluted EPS were as follows:

 

 

(a)

The Company’s unvested restricted stock awards, which include the right to receive non-forfeitable dividends or dividend equivalents, are considered participating securities. Calculations of EPS under the two-class method exclude from the numerator any dividends paid or owed on participating securities and any undistributed earnings considered to be attributable to participating securities. The related participating securities are similarly excluded from the denominator.

 

(b)

The dilutive effect of unexercised stock options excludes from the computation of EPS 0.6 million and 0.2 million of options for the three months ended June 30, 2015 and 2014, respectively, and 0.5 million and 0.2 million of options for the six months ended June 30, 2015 and 2014, respectively, because inclusion of the options would have been anti-dilutive.

 

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

For the three and six months ended June 30, 2015 and 2014, the Company met specified performance measures related to the $750 million of Subordinated Debentures issued in 2006, and maturing in 2036. If the performance measures were not achieved in any given quarter, the Company would be required to issue common shares and apply the proceeds to make interest payments.

Preferred Shares

The Board of Directors is authorized to permit the Company to issue up to 20 million Preferred Shares at a par value of $1.66^2/3 without further shareholder approval. The Company has the following perpetual Fixed Rate/Floating Rate Noncumulative Preferred Share series issued and outstanding as of June 30, 2015:

 

 

(a)

The date on which dividends convert from a fixed rate calculation to a floating rate calculation.

The Company may redeem these Preferred Shares at $1 million per Preferred Share (equivalent to $1,000 per depositary share) plus any declared but unpaid dividends in whole or in part, from time to time, on any dividend payment date on or after the respective fixed to floating rate conversion date, or in whole, but not in part, within 90 days of certain bank regulatory changes.

 

 

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AMERICAN EXPRESS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

16.	Reportable Operating Segments

The Company is a global services company that is principally engaged in businesses comprising four reportable operating segments: USCS, ICS, GCS and Global Network & Merchant Services (GNMS). Corporate functions and certain other businesses, including the Company’s Enterprise Growth Group, as well as other Company operations are included in Corporate & Other.

The following table presents certain selected financial information for the Company’s reportable operating segments and Corporate & Other:

 

 

(a)

Corporate & Other includes adjustments and eliminations for intersegment activity.

 

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ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Business Introduction

When we use the terms “American Express,” “the Company,” “we,” “our” or “us,” we mean American Express Company and its subsidiaries on a consolidated basis, unless we state or the context implies otherwise.

We are a global services company with four reportable operating segments: U.S. Card Services (USCS), International Card Services (ICS), Global Commercial Services (GCS) and Global Network & Merchant Services (GNMS). We provide our customers with access to products, insights and experiences that enrich lives and build business success. Our principal products and services are charge and credit payment card products and travel-related services offered to consumers and businesses around the world. Business travel-related services are offered through the non-consolidated joint venture, American Express Global Business Travel (GBT JV). Prior to July 1, 2014, the business travel operations were wholly owned. Our range of products and services includes:

 

•

charge and credit card products;

 

•

expense management products and services;

 

•

travel-related services;

 

•

stored-value/prepaid products;

 

•

network services;

 

•

merchant acquisition and processing, servicing and settlement, and point-of-sale, marketing and information products and services for merchants; and

 

•

fee services, including fraud prevention services and the design and operation of customized customer loyalty and rewards programs.

Our products and services are sold globally to diverse customer groups, including consumers, small businesses, mid-sized companies and large corporations. These products and services are sold through various channels, including direct mail, online applications, in-house and third-party sales forces and direct response advertising.

We compete in the global payments industry with charge, credit and debit card networks, issuers and acquirers, as well as evolving and growing alternative payment providers. As the payments industry continues to evolve, we face increasing competition from non-traditional players that leverage new technologies and customers’ existing accounts and relationships to create payment or other fee-based solutions. We are transforming our existing businesses and creating new products and services for the digital marketplace as we seek to enhance our customers’ digital experiences and develop platforms for online and mobile commerce.

Our products and services generate the following types of revenue for the Company:

 

•

Discount revenue, our largest revenue source, which represents fees generally charged to merchants when Card Members use their cards to purchase goods and services at merchants on our network;

 

•

Net card fees, which represent revenue earned from annual card membership fees;

 

•

Travel commissions and fees, which are earned by charging a transaction or management fee to both customers and suppliers for travel-related transactions (business travel commissions and fees included through June 30, 2014);

 

•

Other commissions and fees, which are earned on foreign exchange conversions, card-related fees, such as late fees and assessments, Loyalty Partner-related fees and other service fees;

 

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•

Other revenue, which represents revenues arising from contracts with partners of our Global Network Services (GNS) business (including commissions and signing fees), insurance premiums earned from Card Member travel and other insurance programs, prepaid card-related revenues, revenues related to the GBT JV transition services agreement, earnings from equity method investments (including the GBT JV after June 30, 2014) and other miscellaneous revenue and fees; and

 

•

Interest on loans, which principally represents interest income earned on outstanding balances.

Forward-Looking Statements and Non-GAAP Measures

Certain of the statements in this Form 10-Q are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Refer to the “Cautionary Note Regarding Forward-Looking Statements” section. We prepare our Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America (GAAP). However, certain information included within this Form 10-Q constitute non-GAAP financial measures. Our calculations of non-GAAP financial measures may differ from the calculations of similarly titled measures by other companies.

Bank Holding Company

American Express Company is a bank holding company under the Bank Holding Company Act of 1956 and The Board of Governors of the Federal Reserve System (the Federal Reserve) is our primary federal regulator. As such, we are subject to the Federal Reserve’s regulations, policies and minimum capital standards.

Current Business Environment/Outlook

Our results for the second quarter of 2015 reflected higher spending by our Card Members, growth in average Card Member loans, which drove higher net interest income, and disciplined expense control. Credit quality indicators were again at or near historically low levels and our strong balance sheet allowed us to return a substantial amount of capital to our shareholders in the form of repurchases and dividends during the quarter. Consistent with recent quarters, our results this quarter were adversely affected by the significant impact of a stronger U.S. dollar on international operations. The year-ago quarter also included business travel operations and a net gain related to the GBT JV transaction, impacting year-over-year comparisons.

In the second quarter of 2015, we saw an increase in Card Member billed business, although billings growth was slightly slower compared with the first quarter. The impact of changes in foreign exchange rates, and a slowdown in spending by Costco U.S. co-brand Card Members and corporate customers in the U.S. were drivers of this deceleration. We did experience improved billings growth across our international markets after adjusting for foreign currency exchange rates and excluding billed business in Canada, which has been negatively impacted by the termination of our relationship with Costco in that country.

The growth of worldwide Card Member loans and a reduction in borrowing costs during the second quarter of 2015 contributed to an increase in net interest income. Credit performance continued to be strong in the quarter. We would expect that, with future loan growth or any adverse changes in credit performance, provision would increase year-over-year and represent a headwind to growth in the second half of 2015.

Operating expenses for the second quarter of 2015 decreased on a reported basis, as well as on an adjusted basis after excluding the GBT JV transaction gain and related transaction and other costs, and business travel operating expenses incurred in the second quarter of 2014. We remain committed to containing operating expense growth in 2015.

 

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While our business is diversified by product and geography, including a range of consumer and commercial card offerings, a large international business and GNS partners around the world, which we believe provide a range of growth opportunities as noted above, we continue to face a number of challenges throughout the remainder of 2015 and 2016.

Global economic growth remains uneven. In addition, our results continued to be significantly impacted by the strengthening U.S. dollar, and we expect foreign exchange will have an adverse impact for the remainder of 2015. Our results could also be adversely affected by increases in interest rates and U.S. income tax law changes.

Regulation of the payments industry has increased significantly in recent years and various governments around the world have established or are proposing to establish payment system regulatory regimes. See “Certain Legislative, Regulatory and Other Developments” for additional information on the legislative and regulatory environment, including the potential impacts of regulatory changes in the card payment sector in the European Union (EU).

Competition also remains extremely intense across the payments industry. Within the co-brand space, more intense competition has generally led to increased costs in our renewed co-brand partnerships. During the second quarter of 2015, Card Member rewards expense and cost of Card Member services both continued to grow, reflecting a portion of the increased costs related to recently renewed co-brand partnerships. For the remainder of 2015, we expect to see a continued impact of these renegotiated relationships.

As previously announced, our co-brand and merchant acceptance agreements with Costco in the U.S. will not be renewed and are set to expire on March 31, 2016. We have continued to see slowing of new Costco U.S. co-brand Card Member acquisitions, which, along with customer behavior changes, will adversely impact our billed business in 2015.

To proactively prepare for the end of the Costco U.S. partnership in 2016, we have made and intend to continue to make investments in growth initiatives across our Company that we believe offer attractive returns over time and position us for continued long-term growth. As a result, we expect annual marketing and promotion expenses in 2015 to be relatively similar to the elevated level of 2014.

Our earnings per share outlook remains unchanged, as we continue to expect full year 2015 earnings per share growth to be flat to modestly down. As a result of the timing of our incremental spending on growth initiatives weighted more heavily to the second half of the year, along with the prior year benefits from the sale of our investment in Concur and other factors, it is also likely that quarterly earnings performance will be more uneven than it has been historically through the remainder of 2015 and beyond while we go through this transitional period. In 2016, we expect to return to positive earnings per share growth and in 2017, we expect to return to 12 to 15 percent earnings per share growth, within our target range. This outlook does not contemplate the impact of any restructuring charges or other contingencies.

As previously disclosed, a trial court ruled in favor of the U.S. Department of Justice (DOJ) in its antitrust lawsuit against us. Following the decision, on April 30, 2015 the trial court issued an injunction requiring us to change the provisions in our agreements with merchants accepting American Express cards in the U.S. that prohibit merchants from engaging in various actions to encourage Card Members to use other credit or charge card products or networks. The injunction became effective on July 20, 2015. We are vigorously pursuing an appeal of the decision and judgment. See “Certain Legislative, Regulatory and Other Developments” and Part II, Item 1A, “Risk Factors” for additional information on the potential impacts of the adverse decision and injunction on our business.

 

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American Express Company

Consolidated Results of Operations

Refer to the “Glossary of Selected Terminology” for the definitions of certain key terms and related information appearing within this section.

As a result of the GBT JV transaction, we deconsolidated the Global Business Travel (GBT) net assets, effective June 30, 2014, resulting in a lack of comparability between the three and six months ended June 30, 2015 and the same periods in the prior year.

Table 1: Summary of Financial Performance

 

		Three Months Ended																Six Months Ended
(Millions, except percentages and		June 30,																June 30,
per share amounts)		2015				2014				Change								2015				2014				Change
Total revenues net of interest expense		$	8,284			$	8,631			$	(347	)			(4	)%		$	16,234			$	16,804			$	(570	)			(3	)%
Provisions for losses			467				489				(22	)			(4	)			887				974				(87	)			(9	)
Expenses			5,587				5,830				(243	)			(4	)			10,801				11,310				(509	)			(5	)
Net income			1,473				1,529				(56	)			(4	)			2,998				2,961				37				1
Earnings per common share — diluted(a)		$	1.42			$	1.43			$	(0.01	)			(1	)%		$	2.90			$	2.77			$	0.13				5	%
Return on average equity(b)			28.1	%			28.8	%											28.1	%			28.8	%
Return on average tangible common equity (c)			35.4	%			35.8	%											35.4	%			35.8	%

 

(a)

Earnings per common share — diluted was reduced by the impact of (i) earnings allocated to participating share awards and other items of $11 million and $12 million for three months ended June 30, 2015 and 2014, respectively, and $22 million and $24 million for the six months ended June 30, 2015 and 2014, respectively, and (ii) dividends on preferred shares of $20 million and nil for both the three and six months ended June 30, 2015 and 2014, respectively.

 

(b)	ROE is computed by dividing (i) one-year period net income ($5.9 billion and $5.6 billion for June 30, 2015 and 2014, respectively) by (ii) one-year average total shareholders’ equity ($21.1 billion and $19.6 billion for June 30, 2015 and 2014, respectively).

 

(c)

Return on average tangible common equity, a non-GAAP measure, is computed in the same manner as ROE except the computation excludes from one-year average total shareholders’ equity, one-year average goodwill and other intangibles of $3.8 billion and $4.0 billion as of June 30, 2015 and 2014, respectively, and one-year average preferred shares of $716 million as of June 30, 2015. We believe return on average tangible common equity is a useful measure of the profitability of our business.

Table 2: Total Revenue Net of Interest Expense Summary

 

		Three Months Ended																Six Months Ended
		June 30,																June 30,
(Millions, except percentages)		2015				2014				Change								2015				2014				Change
Discount revenue		$	4,946			$	4,919			$	27				1	%		$	9,606			$	9,539			$	67				1	%
Net card fees			667				687				(20)				(3	)			1,334				1,361				(27)				(2	)
Travel commissions and fees			95				500				(405)				(81	)			184				923				(739)				(80	)
Other commissions and fees			632				624				8				1				1,251				1,242				9				1
Other			521				585				(64)				(11	)			989				1,086				(97)				(9	)
Total non-interest revenues			6,861				7,315				(454)				(6	)			13,364				14,151				(787)				(6	)
Total interest income			1,837				1,759				78				4				3,694				3,535				159				4
Total interest expense			414				443				(29)				(7	)			824				882				(58)				(7	)
Net interest income			1,423				1,316				107				8				2,870				2,653				217				8
Total revenues net of interest expense		$	8,284			$	8,631			$	(347)				(4	)%		$	16,234			$	16,804			$	(570)				(3	)%

 

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Total Revenues Net of Interest Expense

Discount revenue increased $27 million or 1 percent and $67 million or 1 percent for the three and six months ended June 30, 2015, respectively, as compared to the same periods in the prior year. Foreign currency-adjusted discount revenue, which excludes the impact of changes in foreign exchange (FX) rates, increased 4 percent for both the three and six months ended June 30, 2015.¹ The increases were due to growth in billed business of 2 percent for both the three and six month periods (6 percent on an FX-adjusted basis for both periods), partially offset by faster growth in GNS billings than in overall Company billings, increases in cash incentives, and higher contra-revenues related to renewed co-brand partnership payments. The increase for the three months ended June 30, 2015 was also driven by an increase in the average discount rate versus the same period in the prior year. Billed business increased 5 percent in the U.S. for both the three and six month periods and decreased 5 percent and 4 percent outside the U.S., in the same periods. FX-adjusted billed business outside the U.S. increased 9 percent and 8 percent for the three and six months ended June 30, 2015, respectively.¹

The average discount rate was 2.49 percent for both the three and six months ended June 30, 2015, and 2.48 percent and 2.49 percent for the three and six months ended June 30, 2014, respectively. The increase in the average discount rate for the three month period was driven by a benefit related to certain merchant rebate accruals. The average discount rate for both the three and six month periods was driven by the timing of certain contract signings and payments to merchant partners in the prior year, the decline in Costco Canada merchant volumes, which were at a lower discount rate than the average, due to the expiration of our merchant acceptance agreement and changes in foreign exchange rates, partially offset by the growth of the OptBlue program and changes in industry mix. Changes in the mix of spending by location and industry, volume-related pricing discounts, strategic investments, certain pricing initiatives, competition, pricing regulation (including regulation of competitors’ interchange rates) and other factors will likely result in continued erosion of our discount rate over time. See Tables 5 and 6 for more details on billed business performance and the average discount rate.

Net card fees decreased $20 million or 3 percent and $27 million or 2 percent for the three and six months ended June 30, 2015, respectively, as compared to the same periods in the prior year, while FX-adjusted net card fees increased 4 percent for both periods, primarily driven by higher basic cards-in-force in USCS.¹

Travel commissions and fees decreased $405 million or 81 percent and $739 million or 80 percent for the three and six months ended June 30, 2015, respectively, as compared to the same periods in the prior year, primarily due to the business travel joint venture transaction, resulting in a lack of comparability between periods.

Other commissions and fees remained relatively flat for both the three and six months ended June 30, 2015, as compared to the same periods in the prior year, while FX-adjusted other commissions and fees increased 11 percent and 10 percent for the respective periods.¹ The increase on an FX-adjusted basis was primarily driven by higher delinquency fees and revenue from our Loyalty Partner business, as well as an increase in merchant service revenue in the three months ended June 30, 2015.

 

 

¹ The foreign currency-adjusted information assumes a constant exchange rate between the periods being compared for purposes of currency translation into U.S. dollars (i.e., assumes the foreign exchange rates used to determine results for the current year apply to the corresponding year period against which such results are being compared). Certain amounts included in the calculations of foreign currency-adjusted revenues and expenses, which constitute non-GAAP measures, are subject to management allocations. We believe the presentation of information on a foreign currency-adjusted basis is helpful to investors by making it easier to compare our performance in one period to that of another period without the variability caused by fluctuations in currency exchange rates.

 

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Other revenue decreased $64 million or 11 percent and $97 million or 9 percent for the three and six months ended June 30, 2015, respectively, as compared to the same periods in the prior year, while FX-adjusted other revenue decreased 4 percent and 2 percent for the respective periods.² The decrease on an FX-adjusted basis was primarily driven by gains related to the sale of investment securities in the Industrial and Commercial Bank of China (ICBC) in the prior year, partially offset by revenues earned related to the GBT JV transition services agreement in the current year.

Interest income increased $78 million or 4 percent and $159 million or 4 percent for the three and six months ended June 30, 2015, respectively, as compared to the same periods in the prior year, and FX-adjusted interest income increased 7 percent and 6 percent for the respective periods, primarily reflecting higher average Card Member loans.²

Interest expense decreased $29 million or 7 percent and $58 million or 7 percent for the three and six months ended June 30, 2015, respectively, as compared to the same periods in the prior year, and FX-adjusted interest expense decreased 4 percent and 5 percent for the respective periods, primarily driven by a lower cost of funds, partially offset by higher average long-term debt.²

Table 3: Provisions for Losses Summary

 

 

		Three Months Ended June 30,																Six Months Ended June 30,
(Millions, except percentages)		2015				2014				Change								2015				2014				Change
Charge card		$	165			$	183			$	(18)				(10)	%		$	339			$	398			$	(59)				(15)	%
Card Member loans			285				282				3				1				520				532				(12)				(2)
Other			17				24				(7)				(29)				28				44				(16)				(36)
Total provisions for losses		$	467			$	489			$	(22)				(4)	%		$	887			$	974			$	(87)				(9)	%

Provisions for Losses

Charge card provisions for losses decreased $18 million or 10 percent and $59 million or 15 percent for the three and six months ended June 30, 2015, respectively, as compared to the same periods in the prior year and FX-adjusted charge card provisions for losses decreased 6 percent and 11 percent, for the respective periods, primarily driven by a larger reserve release versus the prior year.²

Card Member loans provision for losses increased $3 million or 1 percent and decreased $12 million or 2 percent for the three and six months ended June 30, 2015, respectively, as compared to the same periods in the prior year.

Table 4: Expenses Summary

 

 

		Three Months Ended June 30,																Six Months Ended June 30,
(Millions, except percentages)		2015				2014				Change								2015				2014				Change
Marketing and promotion		$	761			$	959			$	(198)				(21)	%		$	1,370			$	1,546			$	(176)				(11)	%
Card Member rewards			1,799				1,773				26				1				3,439				3,355				84				3
Card Member services and other			242				192				50				26				503				414				89				21
Salaries and employee benefits			1,250				1,658				(408)				(25)				2,555				3,198				(643)				(20)
Other, net			1,535				1,248				287				23				2,934				2,797				137				5
Total expenses		$	5,587			$	5,830			$	(243)				(4)	%		$	10,801			$	11,310			$	(509)				(5)	%

 

 

2	Refer to footnote 1 on page 37 for details regarding foreign currency adjusted information.

 

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Expenses

Marketing and promotion expense decreased $198 million or 21 percent and $176 million or 11 percent for the three and six months ended June 30, 2015, respectively, as compared to the same periods in the prior year, and FX-adjusted marketing and promotion expense decreased 17 percent and 8 percent for the respective periods, primarily driven by the reinvestment of a significant portion of the gain from the business travel joint venture transaction in growth initiatives in the prior year, partially offset by the ramping-up of our investments in growth initiatives.³

Card Member rewards expense increased $26 million or 1 percent and $84 million or 3 percent for the three and six months ended June 30, 2015, respectively, as compared to the same periods in the prior year.

The increase for the three months ended June 30, 2015 was primarily due to an increase in co-brand rewards expense of $49 million, driven by rate impacts as a result of previously announced renewed co-brand partnerships. The increase in co-brand rewards expense was partially offset by a decrease in Membership Rewards expense of $23 million. The latter was driven by a decrease of $53 million as a result of slower growth in the Membership Rewards ultimate redemption rate (URR), and a charge in 2014 related to an enhancement in the Membership Rewards URR estimation process for certain international countries, partially offset by a $30 million increase related to new points earned, driven by higher spending volumes.

For the six months ended June 30, 2015, co-brand rewards expense increased $120 million, also driven by rate impacts, partially offset by a decrease in Membership Rewards expense of $36 million. The decrease in Membership Rewards expense reflected slower growth in the URR, and a charge in 2014 related to an enhancement in the Membership Rewards URR estimation process for certain international countries, partially offset by increased expenses related to new points earned, driven by higher spending volumes.

The Membership Rewards URR for current program participants remained at 95 percent (rounded up) at June 30, 2015, in line with March 31, 2015 and June 30, 2014.

Card Member services and other expense increased $50 million or 26 percent and $89 million or 21 percent for the three and six months ended June 30, 2015, respectively, as compared to the same periods in the prior year, and FX-adjusted Card Member services and other expense increased 34 percent and 28 percent for the respective periods, primarily driven by higher costs related to previously renewed co-brand partnerships.³

Salaries and employee benefits expense decreased $408 million or 25 percent and $643 million or 20 percent for the three and six months ended June 30, 2015, respectively, as compared to the same periods in the prior year, and FX-adjusted salaries and employee benefits expense decreased 21 percent and 16 percent for the respective periods, primarily driven by the business travel joint venture transaction (resulting in a lack of comparability between periods) and the restructuring charge in the prior year.³

Other expenses increased $287 million or 23 percent and $137 million or 5 percent for the three and six months ended June 30, 2015, respectively, as compared to the same periods in the prior year. Both periods reflect the net gain recognized as a result of the business travel joint venture transaction in the prior year, which was partially offset by a contribution to the American Express Foundation and a change in the estimated value of certain investments in our Community Reinvestment Act portfolio. The increase in the six month period was also partially offset by a favorable impact from the reassessment of the functional currency of certain UK legal entities in the three months ended March 31, 2015.

 

 

3	Refer to footnote 1 on page 37 for details regarding foreign currency adjusted information.

 

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Income Taxes

The effective tax rate was 33.9 percent and 34.0 percent for the three months ended June 30, 2015 and 2014, respectively. The effective tax rate was 33.9 percent and 34.5 percent for the six months ended June 30, 2015 and 2014, respectively. The tax rates for all periods reflect the level of pretax income in relation to recurring permanent tax benefits and geographic mix of business.

Table 5: Selected Statistical Information

 

			Three Months Ended June 30,												Six Months Ended June 30,
			2015				2014				Change				2015				2014				Change
Card billed business: (billions)
United States		$	181.6			$	173.4				5 %			$	350.8			$	332.6				5 %
Outside the United States			80.4				84.7				(5)				156.8				163.6				(4)
Total		$	262.0			$	258.1				2			$	507.6			$	496.2				2
Total cards-in-force: (millions)
United States			55.3				54.1				2				55.3				54.1				2
Outside the United States			58.5				55.8				5				58.5				55.8				5
Total			113.8				109.9				4				113.8				109.9				4
Basic cards-in-force: (millions)
United States			42.8				42.0				2				42.8				42.0				2
Outside the United States			48.2				45.6				6				48.2				45.6				6
Total			91.0				87.6				4				91.0				87.6				4
Average discount rate(a)			2.49	%			2.48	%							2.49	%			2.49	%
Average basic Card Member spending(b)		$	4,272			$	4,288				—			$	8,277			$	8,281				—
Average fee per card(b)		$	39			$	41				(5)			$	39			$	41				(5)
Average fee per card, adjusted(b)		$	43			$	45				(4)%			$	44			$	45				(2)%

 

(a)

In the three months ended March 31, 2015, we changed the classification related to certain payments to partners, reducing both discount revenue and marketing and promotion expense. The misclassification in prior periods has been revised to conform to the current period presentation. Accordingly, the average discount rate for prior periods was also revised, resulting in a reduction of between zero and one basis point in any period from what was originally reported.

 

(b)

Average basic Card Member spending and average fee per card are computed from proprietary card activities only. Average fee per card is computed based on net card fees, including the amortization of deferred direct acquisition costs divided by average worldwide proprietary cards-in-force. The average fee per card, adjusted, which is a non-GAAP measure, is computed in the same manner, but excludes amortization of deferred direct acquisition costs. The amount of amortization excluded was $62 million and $77 million for the three months ended June 30, 2015 and 2014, respectively, and $145 million and $150 million for the six months ended June 30, 2015 and 2014, respectively. We present the average fee per card, adjusted, because we believe this metric presents a useful indicator of card fee pricing across a range of our proprietary card products.

 

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Table 6: Selected Statistical Information

 

			Three Months Ended June 30, 2015
			Percentage Increase (Decrease)				Percentage Increase Assuming No Changes in Foreign Exchange Rates(a)
Worldwide(b)
Billed business			2	%			6	%
Proprietary billed business			1				4
GNS billed business(c)			5				16
Airline-related volume (9% of worldwide billed business)			(5)				1
United States(b)
Billed business			5
Proprietary consumer card billed business(d)			5
Proprietary small business billed business(d)			6
Proprietary corporate services billed business(e)			1
T&E-related volume (26% of U.S. billed business)			4
Non-T&E-related volume (74% of U.S. billed business)			5
Airline-related volume (8% of U.S. billed business)			(2)
Outside the United States(b)
Billed business			(5)				9
Japan, Asia Pacific & Australia (JAPA) billed business			4				16
Latin America & Canada (LACC) billed business			(17)				(4)
Europe, the Middle East & Africa (EMEA) billed business			(7)				9
Proprietary consumer and small business billed business(f)			(12)				2
JAPA billed business			(4)				10
LACC billed business			(30)				(21)
EMEA billed business			(6)				11
Proprietary corporate services billed business(e)			(10)	%			5	%

 

(a)

The foreign currency adjusted information assumes a constant exchange rate between the periods being compared for purposes of currency translation into U.S. dollars (i.e., assumes the foreign exchange rates used to determine results for the current year apply to the corresponding prior year period against which such results are being compared).

 

(b)	Captions in the table above not designated as “proprietary” or “GNS” include both proprietary and GNS data.

 

(c)	Included in the GNMS segment.

 

(d)	Included in the USCS segment.

 

(e)	Included in the GCS segment.

 

(f)	Included in the ICS segment.

 

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Table 7: Selected Statistical Information

 

			Six Months Ended June 30, 2015
			Percentage Increase (Decrease)				Percentage Increase Assuming No Changes in Foreign Exchange Rates(a)
Worldwide(b)
Billed business			2	%			6	%
Proprietary billed business			2				5
GNS billed business(c)			6				16
Airline-related volume (9% of worldwide billed business)			(4)
United States(b)
Billed business			5
Proprietary consumer card billed business(d)			6
Proprietary small business billed business(d)			7
Proprietary corporate services billed business(e)			3
T&E-related volume (27% of U.S. billed business)			4
Non-T&E-related volume (73% of U.S. billed business)			6
Airline-related volume (8% of U.S. billed business)			(1)
Outside the United States(b)
Billed business			(4)				8
JAPA billed business			5				16
LACC billed business			(16)				(4)
EMEA billed business			(7)				8
Proprietary consumer and small business billed business(f)			(11)				2
JAPA billed business			(3)				10
LACC billed business			(28)				(19)
EMEA billed business			(6)				10
Proprietary corporate services billed business(e)			(10)	%			4	%

 

(a)	Refer to Note (a) in Table 6.

 

(b)	Captions in the table above not designated as “proprietary” or “GNS” include both proprietary and GNS data.

 

(c)	Included in the GNMS segment.