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U.S. CARD SPENDING _ Cardmembers are increasingly using their American Express cards to purchase “everyday” products and services such as groceries, gasoline, office supplies, telecommunications and a wide variety of retail merchandise, further diversifying our card-spending base. Retail and other non-T&E spending now accounts for 63 percent of U.S. billings, up from only 35 percent in 1990. 

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## Foundations for Growth 

Financial results for the year are an important measure of the company’s progress, but as I mentioned earlier, we are managing the business for the long term. With that in mind, I would like to tell you about three major initiatives that are enabling us to build a sustainable platform for moderate to long-term growth: 

Improving our business models 

Lowering our risk profile 

Investing in business-building activities 

## IMPROVING OUR BUSINESS MODELS 

We took a number of steps this year to strengthen our economics. Foremost among them was our continued focus on reengineering our business and improving our margins. 

## Margin Improvement 

Our emphasis on margin improvement and reengineering produced continued reduction in operating expenses. Staff reductions associated with reengineering charges announced in 2001 played a significant role in lowering 

our expense base. However, our reengineering efforts extend far beyond cost reduction, encompassing a broad range of efforts to increase revenues, improve infrastructure and enhance processes. By emphasizing this approach to reengineering, we are better positioned to deliver sustainable improvements. 

Reengineering yielded more than $1 billion in benefits in 2002. In total, over the past two years, we have realized well over $2 billion in reengineering benefits, exceeding our original targets. Based on further oppor- tunities already identified or underway, we aim to deliver another $1 billion in benefits again in 2003. 

As part of our reengineering efforts, we have signifi- cantly expanded our Six Sigma program across the company. We are using Six Sigma to enhance quality and productivity in key business processes and to eliminate costly errors. In 2002, our Six Sigma activities produced nearly $200 million in financial benefits and delivered important quality enhancements. Since launching Six Sigma at American Express in 1999, we 

