American Express 2002 Annual Report Download - page 6

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This progress was clearly demonstrated in our 2002
earnings performance:
❙Net income was $2.67 billion, up from $1.31
billion in 2001. Diluted earnings per share (EPS)
rose to $2.01, up from $0.98 a year ago.
❙Return on equity was 20.6 percent, compared with
10.9 percent in 2001.
❙Revenues totaled $23.8 billion, up 5 percent from
$22.6 billion in 2001.
In making these comparisons, it is important to note
that our year-ago net income was affected by a number
of unusual items — a $1.01 billion ($669 million
after-tax) charge reflecting write-downs and losses
associated with high-yield securities at American
Express Financial Advisors, a company-wide $631
million ($411 million after-tax) restructuring charge
primarily to cover the cost of workforce reductions,
and one-time costs of $98 million ($65 million after-
tax) resulting from the September 11th attacks. These
items obviously depressed our year-ago results and
help explain why earnings more than doubled in 2002.
Nevertheless, even excluding the impact of these items,
our underlying earnings growth for 2002 was quite
strong.
Building a Strong Platform for Growth
Our results for the year reflect several factors, including:
a solid expansion of our global card businesses, lower
expenses due to the success of our ongoing reengineer-
ing programs, strong credit quality and the benefits of
lower funding costs.
Revenue growth, however, did not match the double-
digit rates we delivered during the more robust
economic conditions of 1999 and 2000. In fact, it fell
short of our long-term target of 8 percent growth.
Nevertheless, the steps we have taken to improve our
expense margins enabled us to deliver strong bottom-
line results in a tougher environment, while at the
same time freeing up resources to fund investments in
business-building activities.
We significantly increased spending on new products,
capabilities and marketing activities – particularly in
our card businesses during the second half of the year.
By the end of 2002, we were seeing early signs that
these investments were producing the expected results.
For example, we generated strong growth in card-
member spending, had higher loan balances and added
more than 900,000 new cards in force during the
fourth quarter of 2002. Our decision to invest a large
portion of our reengineering savings in business-build-
ing efforts, rather than letting them flow directly to
2002 earnings, helped us continue to build competitive
advantages, expand our customer relationships and
build momentum as we ended the year.
As we manage our business, we are focused on meeting
our financial targets the right way. Our actions are
based on the company’s long-term interests rather than
on short-term, expedient solutions. The importance
of managing with integrity and a long-term view was
made strikingly clear by the ethical failures at a
number of companies in 2002. The impact of these
failures on shareholders and employees was devastat-
ing. The actions that caused them are inexcusable.
The steps taken by lawmakers, regulators and companies
themselves to strengthen corporate governance and
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