American Express 2001 Annual Report Download - page 30

Download and view the complete annual report

Please find page 30 of the 2001 American Express annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 84

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84

axp_28
FINANCIAL REVIEW
Financial Review
CONSOLIDATED RESULTS OF OPERATIONS
During 2001, American Express Company’s (the company) financial results reflected generally worsening economic conditions
throughout the year, including weakness in billings and investment activity, as well as significantly lower travel and entertainment
related spending after the terrorist attacks of September 11th.
The company reported 2001 net income of $1.31 billion, 53 percent lower than the $2.81 billion in 2000, which represented 14 per-
cent growth from 1999. The 2001 results included restructuring charges of $411 million (after-tax) and $65 million (after-tax) of
one-time costs and business interruption losses related to the terrorist attacks of September 11th. These costs are discussed in
greater detail below. Excluding these items, 2001 net income fell 36 percent to $1.79 billion.
Diluted earnings per share were $0.98, $2.07 and $1.81 in 2001, 2000 and 1999, respectively. After adjusting 2001 for the above-
mentioned restructuring and September 11th related items,diluted earnings per share were $1.34. On this basis,2001 earnings per
share declined 35 percent.
2001 results also included losses of $1.01 billion ($669 million after-tax) recorded in the first half of the year related to the write
down and sale of some high-yield securities and the reduction of risk within American Express Financial Advisors’ (AEFA) invest-
ment portfolio. 2000 results reflect approximately $123 million ($88 million after-tax) of such losses.
Consolidated net revenues on a managed basis declined 3 percent in 2001 to $21.4 billion, compared with $22.1 billion in 2000,
which represented 13 percent growth from 1999. 2001 net revenues declined due to lower spreads on AEFA’s investment portfo-
lio,which reflect the investment losses and portfolio repositioning mentioned above, weaker travel revenues, as well as lower man-
agement and distribution fees. These items were partially offset by an increase in cards-in-force, larger loan balances and greater
insurance revenues. Consolidated expenses on a managed basis rose 8 percent in 2001 due to the previously mentioned charges,
larger provisions for losses and higher operating expenses. These increases were partially offset by lower marketing costs, a decline
in human resource expenses, reengineering activities and other expense control initiatives.
In the third and fourth quarters of 2001, the company incurred restructuring charges of $352 million ($232 million after-tax) and
$279 million ($179 million after-tax),respectively, resulting in total charges of $631 million ($411 million after-tax) for the full year.
The pretax charges include $369 million for severance and $262 million of other charges, including facility consolidations and exit
costs. The savings for 2002 resulting from these initiatives is expected to be approximately $605 million, a portion of which will
flow through to earnings in the form of improved operating expense margins. The rest is expected to be reinvested back into busi-
ness areas with high-growth potential. The combined charges, planned employee reductions and estimated cost savings by seg-
ment are as follows. See Note 2 to the Consolidated Financial Statements for further information.
Restructuring Charges Expected Cost Savings
(Dollars in millions) Pretax After-tax Employee Reductions* 2002 2003
Travel Related Services $ 414 $ 267 10,900 $ 495 $ 575
American Express Financial Advisors 107 70 1,300 60 95
American Express Bank 96 65 500 30 45
Corporate and Other 14 9 200 20 25
Total $ 631 $ 411 12,900 $ 605 $ 740
*The majority of employee reductions will occur in 2002. These are in addition to approximately 1,600 reductions identified this year from ongoing reengineering activities.
Overall, the full year results reflected strong progress on reengineering efforts, which, including the effect of the two restructuring
charges, resulted in benefits in excess of $1.0 billion distributed among reduced operating expenses and provisions, and to a lesser
extent, increased revenues. A portion of these benefits flowed through to results of operations while the rest was reinvested back
into high-growth areas of the business.