American Express 2002 Annual Report Download - page 28

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Financial Review
INTRODUCTION
The financial section of the American Express Company’s Annual Report consists of this Financial Review, the Consolidated
Financial Statements that follow and the related notes. This introduction is designed to provide some perspective regarding the
information contained in the financial section.
Business Operations
American Express Company (the company) is primarily engaged in the business of providing travel related services, financial
advisory services and international banking services throughout the world. The company generates revenue from a variety of
sources including global payments such as charge and credit cards; travel services including airline, hotel and rental car reserva-
tions; and a wide range of retail financial service products.
Financial Reporting
The company follows accounting principles generally accepted in the United States (GAAP). In addition to information
provided on a GAAP basis, the company discloses certain data on a “managed basis.” These data, which should be read
only as a supplement to GAAP information, assume there have been no securitization transactions, i.e., as if all securitized
cardmember loans and related income effects are reflected in the company’s balance sheet and income statement. See Travel
Related Services’ and American Express Financial Advisors’ Results of Operations sections for further discussion of and
reasons for this approach.
Organization of Information
❙This Financial Review section (pages 26 to 53) is designed to provide the reader of the financial statements with a narrative
on the company’s financial results. It discusses the results of operations and liquidity and capital resources on a consolidated
basis and for each segment of the business.
❙The Consolidated Financial Statements (pages 54 through 57) include the company’s income and cash flow performance and
its financial position.
❙The Notes to the Consolidated Financial Statements (pages 58 to 84) contain the company’s accounting policies (pages 58
through 63), detailed information on balances within the financial statements, certain contingencies and commitments
(pages 72 and 73), and the results of each of the company’s segments (page 81).
❙The Report of Management (page 85) describes management’s responsibilities regarding the company’s financial statements.
❙The Report of Independent Auditors (page 86) contains the opinion of Ernst & Young LLP regarding the company’s financial
statements.
CONSOLIDATED RESULTS OF OPERATIONS
The company’s 2002 financial results reflect solid growth in the company’s card businesses, lower expenses due to the success
of ongoing reengineering programs, strong credit quality and the benefits of lower funding costs.
The company reported 2002 net income and diluted earnings per share (EPS) of $2.67 billion and $2.01, respectively, up signif-
icantly from $1.31 billion and $0.98, respectively, in 2001, which were both 53 percent lower than 2000. The 2001 results
included restructuring charges of $631 million ($411 million after-tax), $98 million ($65 million after-tax) of one-time costs
and waived customer fees resulting from the September 11th terrorist attacks, and a charge of $1.01 billion ($669 million after-
tax) reflecting losses in the high-yield portfolio at American Express Financial Advisors (AEFA).
On a trailing 12-month basis, return on average shareholders’ equity was 20.6 percent.
The following discussion is presented on a basis consistent with GAAP unless otherwise noted.
Consolidated revenues were $23.8 billion, up 5 percent from $22.6 billion in 2001 reflecting 2 percent growth at Travel
Related Services (TRS), 17 percent growth at AEFA and 15 percent growth at American Express Bank (AEB). 2001 revenues
were 5 percent lower than 2000. As discussed in further detail below, the increase in 2002 was due primarily to higher discount
I26 AXP IFINANCIAL REVIEW