American Express 2003 Annual Report Download

Download and view the complete annual report

Please find the complete 2003 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 116

  • 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
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116

American Express Company Annual Report 2003

Table of contents

  • Page 1
    American Express Company Annual Report 2003

  • Page 2
    ... Letter to Shareholders Financial Review p. 27 p. 2 p. 3 Consolidated Statements of Income Consolidated Balance Sheets p. 75 p. 74 Consolidated Statements of Cash Flows p. 76 p. 77 Consolidated Statements of Shareholders' Equity Notes to Consolidated Financial Statements Report of Management...

  • Page 3

  • Page 4
    ... declared per common share Book value per common share Average common shares outstanding for diluted earnings per common share Total assets Shareholders' equity Common share cash dividends declared Common share repurchases Return on average shareholders' equity Number of employees 9% 12% 12% 15...

  • Page 5
    2003 was an outstanding year for American Express. We delivered record earnings and met or exceeded all of our long-term financial targets, while significantly increasing our investments in the business to generate future growth. Those investments are paying off: we built strong momentum in the ...

  • Page 6
    (p.4_axp) Strong growth in our card business, outstanding credit quality, the success of our ongoing reengineering efforts, and progress at American Express Financial Advisors all played a role in our 2003 performance. For the year, we delivered: Net income of $2.99 billion, up 12 percent from ...

  • Page 7
    ... with increased business volumes. We also continued to use technology, particularly the Internet, to improve productivity and lower our servicing costs across our business. Shareholder Returns The financial markets clearly recognized our strong financial performance in 2003. American Express' total...

  • Page 8
    ...the year. American Express is a world leader in providing charge and credit cards to consumers, small businesses and corporations. In 2003, we added 3.5 million new cards, bringing total worldwide cards-in-force to 60.5 million. We were among the top card issuers in both spending and lending balance...

  • Page 9
    ... quality, with charge and lending write-off rates at or near historic lows; aggressively growing everyday spending on our card products, further reducing our traditional reliance on travel and entertainment; and increasing our product breadth across our businesses. As a result, American Express...

  • Page 10
    ... of our spend-centric business model in the global payments business. These advantages include our: relationships with high-spending consumer, small business and corporate customers; diverse sources of revenue derived from cardmember spending, lending and fees; tremendous product breadth (charge...

  • Page 11
    ... of spending in 2002. We launched innovative card products around the world, enriched our rewards programs, expanded our merchant network and formed partnerships that enhanced the value we provide to our customers. Growing Our U.S. Consumer Card Business Early in the year, we introduced Blue Cash...

  • Page 12
    ...-term goals are 12 to 15 percent earnings per share growth, 8 percent revenue growth, and 18 to 20 percent return on equity, on average and over time). Revenue growth accelerated throughout the year, as the business-building investments we made in 2002 and 2003 generated increasingly strong returns...

  • Page 13
    ...American Express AeroplanPlus Gold Card for Canadian consumers, Platinum Business Credit Card for small businesses and Blue Cash for U.S. consumers are just a few of the card products introduced in 2003. AEFA launched six new mutual funds, the online service Financial Accounts and the ONE High-Yield...

  • Page 14
    ...Canada. We also introduced a rewards "Accelerator" program in 10 markets that drives spending by enabling cardmembers to earn points faster. Expanding GNS Partnerships Our Global Network Services (GNS) business - where we partner with financial institutions that issue American Express-branded cards...

  • Page 15
    ... have done internationally. This was proven in January 2004, when we announced our first major network deal in the United States with MBNA, one of the world's largest and most successful credit card issuers. MBNA will offer a new line of card products that will carry the American Express logo and...

  • Page 16
    ... airlines. We issued new cobranded corporate cards with both American Airlines and Qantas. These cards are the first to offer benefits tailored to midsize companies, including cash rebates on air travel, bonus points and discounts on everyday spending. We also announced plans to introduce new cards...

  • Page 17
    ... of Threadneedle Asset Management boosted AEFA assets owned, managed or administered by $85 billion. (ii) New products that provide savings to midsize companies include the American Express Business ExtrAA Corporate Card. (iii) A multimillion-dollar advertising campaign launched the Blue Cash credit...

  • Page 18
    ... be used worldwide at the millions of merchants and ATMs that accept the American Express Card. We continued to expand the distribution channels for our prepaid products with the addition of retail, airline, car rental, hotel and travel agency sellers, as well as postal services in Australia, Canada...

  • Page 19
    ... to help strengthen our retail and institutional products and grow our global financial services business. We are seeing results. Many of the equity funds where we have changed managers have improved track records. We are also seeing good performance in new portfolios introduced to further enhance...

  • Page 20
    ... of business. Our global card business had an outstanding year. We added 3.5 million new American Express Cards, reaching an all-time high of 60.5 million cards-in-force. We were among the top card issuers in both spending and lending balance growth. We believe these results led to card share gains...

  • Page 21
    ... equity product line. We rolled out Financial Accounts, a free online service that helps clients organize and track the value of their American Express and third-party financial accounts. In addition, we launched the ONE High-Yield Savings account that offers account holders the benefits...

  • Page 22
    ... network of more than 260 bank partners worldwide. This business has more than doubled over the past year to $2.65 billion in assets under management. AEB also cross-sells its Private Banking products to American Express' international cardmember base and premium card products to its Private Banking...

  • Page 23
    ...and our business become even more successful, we took steps in 2003 to further strengthen our internal culture, our talent and our leadership across the organization. Following a company-wide review of our organizational culture, we introduced renewed values for American Express Company in 2003. Our...

  • Page 24
    ... Places to Work for Women of Color." We also maintained or improved our high rankings in several key listings. For example, we ranked 36th on Fortune magazine's "100 Best Companies" listing in 2003, which is the same as 2002 and up from 91st in 2001. Board of Directors On behalf of our shareholders...

  • Page 25
    ... our internal culture and drive business results. American Express Company Values 1. Customer Commitment: We develop relationships that make a positive difference in our customers' lives. 2. Quality: We provide outstanding products and unsurpassed service that, together, deliver premium value to...

  • Page 26
    ... card businesses, at American Express Financial Advisors and at American Express Bank. At the same time, we have a number of expanded opportunities to accelerate growth in certain parts of our business, including growth in the Corporate Middle Market and in our Global Network Services business...

  • Page 27

  • Page 28
    ... Balance Sheets p. 75 Consolidated Statements of Cash Flows p. 76 p. 77 Consolidated Statements of Shareholders' Equity Notes to Consolidated Financial Statements Report of Management p. 109 p. 78 Report of Ernst & Young LLP Independent Auditors p. 110 p. 111 Consolidated Five-Year Summary...

  • Page 29
    ... stored value products. The Company's Corporate Card services help companies and institutions manage their travel, entertainment and purchasing expenses. TRS' global network services business focuses on partnering with third-party financial institutions that issue American Express-branded cards...

  • Page 30
    ...income as prepaid cash is invested prior to encashment of the Travelers Cheque or use of the other stored value product. American Express Financial Advisors AEFA provides a variety of financial products and services to individuals, businesses and institutions, primarily through its nationwide force...

  • Page 31
    ... major corporate travel agency with clients and operations around the world. Looking forward to 2004, the Company expects continued growth in the United States and many other global economies and continued strength and confidence in the financial markets. The Company believes its business momentum...

  • Page 32
    ...return on average shareholders' equity was 20.6 percent. Both the Company's revenues and expenses are affected by changes in the relative values of non-U.S. currencies to the U.S. dollar. The currency rate changes increased both revenue and expense growth by approximately 2 percentage points in 2003...

  • Page 33
    ...during 2003. Management believes, based on historical experience, that cardmembers enrolled in rewards and co-brand programs yield higher spend, better retention, stronger credit performance and greater profit for the Company. Marketing, promotion, rewards and cardmember services expenses increased...

  • Page 34
    ... as a result of lower than anticipated insured loss claims. Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets," which established new accounting and reporting standards for goodwill and other intangible...

  • Page 35
    ...range of travel rewards, retail merchandise and gourmet gifts. The Company makes payments to its reward partners when cardmembers redeem their points and establishes reserves to cover the cost of future reward redemptions. The provision for the cost of Membership Rewards is based upon points awarded...

  • Page 36
    ... amortized cost. The Company's investment portfolio also contains structured investments of various asset quality, including collateralized debt obligations (CDOs) and secured loan trusts (backed by high-yield bonds and bank loans), which are not readily marketable. As a result, the carrying values...

  • Page 37
    ... net of asset fees and anticipates a blend of equity and fixed income investments. Management reviews and, where appropriate, adjusts its assumptions with respect to customer asset value growth rates on a quarterly basis. The Company uses a mean reversion method as a guideline in setting near-term...

  • Page 38
    ... review) The Company believes allocating capital to its growing businesses with a return on risk-adjusted equity in excess of their cost of capital will continue to build shareholder value. The Company's philosophy is to retain earnings sufficient to enable it to meet its growth objectives...

  • Page 39
    ... program to return equity capital in excess of its business needs to shareholders. These share repurchases both offset the issuance of new shares as part of employee compensation plans and reduce shares outstanding. The Company repurchases its common shares primarily by open market purchases using...

  • Page 40
    ...-balance sheet debt, avoids distortions due to the mix of funding sources at any particular point in time. Funding Strategy The Company's funding sources are well diversified and include commercial paper, retail and institutional customer deposits, bank notes, medium-term notes, senior debt, asset...

  • Page 41
    ... of short-term debt outstanding, by extending and spreading out the maturities of long-term debt and through the establishment of an investment pool of high quality, liquid assets. DEBT ISSUANCE GREATER THAN ONE YEAR: MATURITY DISTRIBUTION FOR 2003 AND 2002 2003 2002 % of Total Term Debt Issued 50...

  • Page 42
    ... debt securities issued by the Parent Company, that have a final maturity of 30 years) was issued. The Company's 2003 term offerings on a managed basis, which include those made by the Parent Company, American Express Credit Corporation (Credco) and American Express Centurion Bank (Centurion Bank...

  • Page 43
    ... conversion price, then the debt may be converted into common shares of the Company. This convertible debt offering was attractive due to the low effective debt coupon and provided further diversification of the Company's funding sources. See Note 6 to the Consolidated Financial Statements...

  • Page 44
    ... are associated with cardmember services provided to enhance the value of owning an American Express card. At December 31, 2003, the Company had guarantees totaling $82 billion related to TRS cardmember protection plans, as well as other guarantees in the ordinary course of business that are within...

  • Page 45
    ... Company's Treasury department, along with various asset and liability committees in its businesses, is responsible for managing financial market risk exposures within the context of Board-approved policies. See Note 9 to the Consolidated Financial Statements for a discussion of the Company's use...

  • Page 46
    ... value of equity securities under management at AEFA. Computations of the prospective effects of hypothetical interest rate, foreign exchange rate and equity market changes are based on numerous assumptions, including relative levels of market interest rates, foreign exchange rates and equity prices...

  • Page 47
    ... Travelers Cheque investment income Securitization income, net Other revenues Total net revenues Expenses: Marketing, promotion, rewards and cardmember services Provision for losses and claims: Charge card Lending Other Total Charge card interest expense Net discount expense Human resources Other...

  • Page 48
    ... cardmember relationships and ongoing business performance and trends over time. It is also important for investors to see the overall growth of cardmember loans and related revenue and changes in market share, which are significant metrics in evaluating the Company's performance and which can...

  • Page 49
    ... Travelers Cheque investment income Securitization income, net Other revenues Total net revenues Expenses: Marketing, promotion, rewards and cardmember services Provision for losses and claims: Charge card Lending Other Total Charge card interest expense Net discount expense Human resources Other...

  • Page 50
    ... than average growth in the lower rate retail and other "everyday spend" merchant categories (i.e., supermarkets, discounters, etc.). Based on the Company's business strategy, it expects to see continued changes in the mix of business. This, along with volume-related pricing discounts and selective...

  • Page 51
    ... financial review) Net card fees increased 6 percent in 2003 reï¬,ecting 6 percent growth in cards-in-force and the benefit of selected annual fee increases. The average annual fee per proprietary card-in-force increased to $35 in 2003 versus $34 in both 2002 and 2001. Net card fees increased...

  • Page 52
    ... growth and increased reserve coverage levels. The net write-off rate for the worldwide lending portfolio was 5.2% in 2003 versus 5.9% in 2002. Charge card interest expense declined 20 percent in 2003 due to a lower effective cost of funds, partially offset by a higher average receivable balance...

  • Page 53
    ... States Total Average discount rate* Average basic cardmember spending (dollars)* Average fee per card - managed (dollars)* Non-Amex brand:** Cards-in-force (millions) Billed business Travel sales Travel commissions and fees/sales Travelers Cheque and prepaid products: Sales Average outstanding...

  • Page 54
    ...loss ratio as a % of charge volume Worldwide lending - owned basis: Total loans Past due loans as a % of total: 30- 89 days 90+ days Loss reserves (millions): Beginning balance Provision Net charge-offs Other Ending balance % of loans % of past due Average loans Net write-off rate Net interest yield...

  • Page 55
    ...and managed portfolios. Liquidity and Capital Resources SELECTED BALANCE SHEET INFORMATION (GAAP BASIS) December 31, (Billions, except percentages) 2003 2002 Accounts receivable, net Travelers Cheque investments Worldwide cardmember loans Total assets Travelers Cheques outstanding Short-term debt...

  • Page 56
    ... money market fund investors and expanded Credco's investor base. • $1 billion of 5-year notes issued by Credco. The following table highlights TRS' outstanding debt and off-balance sheet securitizations as of December 31, 2003 and 2002: (Billions) 2003 2002 Short-term debt Long-term debt Total...

  • Page 57
    ...widely used by many financial institutions. The securitization market in the United States is highly liquid, efficient and mature with over $1.3 trillion of asset-backed securities outstanding at December 31, 2003. This market provides TRS with very cost-effective funding for its long-term funding...

  • Page 58
    ... of designated consumer American Express Credit Card, Optima Line of Credit and Sign & Travel/Extended Payment Option revolving credit accounts or features owned by Centurion Bank. In the future, it may include other charge or credit accounts, features or products. The Master Trust securitized...

  • Page 59
    ... liquidity needs. From time to time, either Credco or Centurion Bank may increase its liquidity portfolio in order to pre-refund maturing debt obligations when financial market conditions are favorable. These levels are monitored and adjusted when necessary to maintain short-term liquidity needs in...

  • Page 60
    ... guidelines. At December 31, 2003, the Company's consolidated tangible net worth was approximately $12.4 billion, Credco's ratio of combined earnings and fixed charges to fixed charges was 1.46 and Centurion Bank exceeded the Federal Deposit Insurance Corporation's "well capitalized" regulatory...

  • Page 61
    ... to buy and sell currencies on a spot or forward basis. At December 31, 2003, foreign currency products with total notional amounts of approximately $9.9 billion were outstanding. Based on the year-end 2003 and 2002 foreign exchange positions, but excluding forward contracts managing the anticipated...

  • Page 62
    ...review) AMERICAN EXPRESS FINANCIAL ADVISORS Results of Operations STATEMENTS OF INCOME Years Ended December 31, (Millions) 2003 2002 2001 Revenues: Investment income Management and distribution fees Other revenues Total revenues Expenses: Provision for losses and benefits: Annuities Insurance...

  • Page 63
    (p.61_axp_ financial review) Investment income increased 11 percent in 2003 as higher levels of invested assets and the effect of appreciation in the S&P 500 on the value of options hedging outstanding stock market certificates and equity indexed annuities this year versus depreciation last year, ...

  • Page 64
    ...-related costs. See the DAC and related adjustments discussion below for further information. The 2002 increase reï¬,ects the impact of technology outsourcing agreements, which resulted in the transfer of costs from human resources expense, a higher minority interest for the premium deposits...

  • Page 65
    ... changes and the effects of related reengineering. This revision, which resulted in an increase in ongoing expenses, continued to impact 2003 results. DAC balances for various insurance, annuity and other products sold by AEFA are set forth below: December 31, (Millions) 2003 2002 Life and health...

  • Page 66
    ...GMDB provision in the "ï¬,agship" variable annuity product offered by IDS Life Insurance Company (IDS Life) and IDS Life of New York throughout 2003, American Express Retirement Advisor Advantage Variable Annuity, provides that if the contract owner and annuitant are age 80 or younger on the date of...

  • Page 67
    ... assets: Separate account assets Other owned assets Managed assets Cash sales: Mutual funds Annuities Investment certificates Life and other insurance products Institutional Other Total cash sales Number of financial advisors Fees from financial plans and advice services Percentage of total sales...

  • Page 68
    ... gains or losses related to the CDO, including the December 31, 2003 implementation charge, will reverse themselves over time as the structure matures, because the debt issued to the investors in the CDO is non-recourse to the Company, and further reductions in the value of the related assets will...

  • Page 69
    ... 1 to the Consolidated Financial Statements. During 2001, the Company placed a majority of its rated CDO securities and related accrued interest, as well as a relatively minor amount of other liquid securities (collectively referred to as transferred assets), having an aggregate book value of $905...

  • Page 70
    ... purchases index options to manage the margin related to certain investment certificate and annuity products that pay interest based upon the relative change in a major stock market index between the beginning and end of the product's term. At December 31, 2003, equity-based derivatives with a net...

  • Page 71
    ...AMERICAN EXPRESS BANK Results of Operations STATEMENTS OF OPERATIONS Years Ended December 31, (Millions) 2003 2002 2001 Net revenues: Interest income Interest expense Net interest income Commissions and fees Foreign exchange income and other revenues Total net revenues Expenses: Human resources...

  • Page 72
    ...of growth within Private Banking and its Financial Institutions Group (FIG), partially offset by loan and other activity reductions within Corporate Banking, and within its Personal Financial Services (PFS) lending business, particularly Hong Kong. AEB reported net income of $102 million in 2003 and...

  • Page 73
    ...)* Loan loss reserve as a percentage of total loans Total Personal Financial Services (PFS) loans 30+ days past due PFS loans as a percentage of total PFS loans Assets managed**/administered Assets of non-consolidated joint ventures Total assets Deposits Total liabilities Total shareholder's equity...

  • Page 74
    ..., futures and forward rate agreements. Generally, they are used to manage specific interest rate and foreign exchange exposures related to deposits, long-term debt, equity, loans and securities holdings. At December 31, 2003, interest rate products with notional amounts totaling approximately $12...

  • Page 75
    ... and growth in card lending balances, which depend in part on the ability to issue new and enhanced card products and increase revenues from such products, attract new cardholders, capture a greater share of existing cardholders' spending, sustain premium discount rates, increase merchant coverage...

  • Page 76
    ... financial statements) Consolidated Statements of Income AMERICAN EXPRESS COMPANY Years Ended December 31, (Millions, except per share amounts) 2003 2002 2001 Revenues Discount revenue Net investment income Management and distribution fees Cardmember lending net finance charge revenue Net card...

  • Page 77
    ...and Shareholders' Equity Customers' deposits Travelers Cheques outstanding Accounts payable Insurance and annuity reserves: Fixed annuities Life and disability policies Investment certificate reserves Short-term debt (Note 6) Long-term debt (Note 6) Separate account liabilities Guaranteed preferred...

  • Page 78
    ... financial statements) Consolidated Statements of Cash Flows AMERICAN EXPRESS COMPANY Years Ended December 31, (Millions) 2003 2002 2001 Cash Flows from Operating Activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Provisions for losses...

  • Page 79
    (p.77_axp_ consolidated financial statements) Consolidated Statements of Shareholders' Equity AMERICAN EXPRESS COMPANY Common Shares Additional Paid-in Capital Accumulated Other Comprehensive Income/(Loss) Retained Earnings Three Years Ended December 31, 2003 (Millions) Total Balances at ...

  • Page 80
    ... range of business activities, including payment instruments such as charge and credit cards, travel services including airline, hotel and rental car reservations, and a wide range of investment, savings, lending and insurance products. Discount revenue The Company earns discount revenue from fees...

  • Page 81
    ... the Company's Membership Rewards program are recognized over the period covered by the fee. Insurance and annuity revenues Insurance and annuity revenues include premiums on traditional life, disability income, long-term care and property/casualty insurance and certain charges assessed on universal...

  • Page 82
    ...range of travel rewards, retail merchandise and gourmet gifts. The Company makes payments to its reward partners when cardmembers redeem their points and establishes reserves to cover the cost of future reward redemptions. The provision for the cost of Membership Rewards is based upon points awarded...

  • Page 83
    ... and prospective financial condition. Fair value is generally based on quoted market prices. However, the Company's investment portfolio also contains structured investments of various asset quality, including CDOs and secured loan trusts (backed by high-yield bonds and bank loans), which are not...

  • Page 84
    ...insurance plans. Anticipated interest rates range from 4% to 10%, depending on policy form, issue year and policy duration. Liabilities for future disability income and long-term care policy benefits include both policy reserves and claim reserves. Policy reserves are based on the net level premium...

  • Page 85
    ... notes to consolidated financial statements) lying common stock on the date of grant. For the year ended December 31, 2003, the Company expensed $24 million aftertax related to stock options granted in 2003. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation...

  • Page 86
    ...46 provide returns to investors primarily based on the performance of an underlying portfolio of high-yield loans which are managed by AEFA. The consolidation of FIN 46-related entities resulted in a cumulative effect of accounting change that reduced 2003 net income through a non-cash charge of $13...

  • Page 87
    ...requires reserves related to guaranteed minimum death benefits included within the majority of variable annuity contracts offered by AEFA. SOP 03-1 is required to be adopted on January 1, 2004, and any impact will be recognized as a cumulative effect of change in accounting principle in the Company...

  • Page 88
    ...notes to consolidated financial statements) The following table provides information about Available-for-Sale investments with gross unrealized losses and the length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2003: (Millions) Description...

  • Page 89
    ... Company placed a majority of its rated CDO securities and related accrued interest, as well as a relatively minor amount of other liquid securities (collectively referred to as transferred assets), having an aggregate book value of $905 million, into a securitization trust. In return, the Company...

  • Page 90
    ...the sold assets from the balance sheet, a reduction in a previously established reserve for credit losses and the recognition of the present value of the future net cash ï¬,ows (i.e., finance charge income less interest paid to investors, credit losses and servicing fees) related to the sold assets...

  • Page 91
    ... of sale and the book basis of the assets sold. That book basis is determined by allocating the carrying amount of the assets, net of applicable reserve for losses, between the assets sold and the retained interests based on their relative fair values. Fair values are based on market prices at...

  • Page 92
    ...year ended December 31, 2001: (Millions, except per share amounts) Net Income Basic EPS Diluted EPS Reported Add back: Goodwill amortization (after-tax) Adjusted $ 1,311 82 $ 1,393 $ 0.99 0.06 $ 1.05 $ 0.98 0.06 $ 1.04 (Note 6) SHORT- AND LONG-TERM DEBT AND BORROWING AGREEMENTS Short-Term Debt...

  • Page 93
    ...91_axp_ notes to consolidated financial statements) Long-Term Debt December 31, (Dollars in millions) Notional Amount of Swaps 2003 Year-End Stated Rate on Debt(a,b) Year-End Effective Interest Rate with Maturity of Swaps(a,b) Swaps Notional Amount of Swaps 2002 Year-End Year-End Effective Stated...

  • Page 94
    ... to offset the issuance of new shares as part of employee compensation plans and to reduce shares outstanding. In November 2002, the Company's Board of Directors authorized the Company to repurchase up to 120 million additional common shares from time to time as market conditions allow. Since the...

  • Page 95
    ... aggregate purchase price. The contracts were initially recorded at their fair value within equity on the Company's balance sheet in accordance with EITF Issue 00-19, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock." Subsequent activity...

  • Page 96
    ... is 15 years and relates to forecasted fixed annuity sales. In addition, for selected major overseas markets, the Company uses certain foreign currency forward contracts with maturities not exceeding 36 months to offset the effect of changes in foreign currency exchange rates on certain forecasted...

  • Page 97
    ...derivative's value is based on the interest and gains and losses related to a reference portfolio of high-yield loans. See Note 6 for further information regarding the Company's use of interest rate products related to short- and long-term debt obligations. (Note 10) GUARANTEES AND OFF-BALANCE SHEET...

  • Page 98
    ...life insurance obligations, employee benefit obligations, investments accounted for under the equity method and deferred acquisition costs are excluded. The fair values of financial instruments are estimates based upon market conditions and perceived risks at December 31, 2003 and 2002 and require...

  • Page 99
    ...surrender charges and related loans. For variable rate long-term debt that reprices within a year, fair values approximate carrying values. For other long-term debt, fair value is estimated using either quoted market prices or discounted cash ï¬,ows based on the Company's current borrowing rates for...

  • Page 100
    ... The Company also sponsors the American Express Incentive Savings Plan, under which purchases of the Company's common shares are made by or on behalf of participating U.S. employees. In 1998, the Compensation and Benefits Committee (CBC) adopted a restoration stock option program. In July 2003, the...

  • Page 101
    ...covered by local retirement plans, some of which are funded, or receive payments at the time of retirement or termination under applicable labor laws or agreements. Plan assets consist principally of equities and fixed income securities. The Company measures the obligations and related asset values...

  • Page 102
    ... value of assets for all plans accounted for under SFAS No. 87: RECONCILIATION OF CHANGE IN BENEFIT OBLIGATION (Millions) 2003 2002 Benefit obligation, October 1 prior year Service cost Interest cost Benefits paid Actuarial loss Plan amendment Settlements/curtailments Foreign currency exchange...

  • Page 103
    ... assumptions used to determine net periodic benefit cost were: 2003 2002 2001 Discount rates Rates of increase in compensation levels Expected long-term rates of return on assets(a) 6.2% 4.0% 8.1% 7.0% 4.2% 9.3% 7.4% 4.4% 9.5% (a) At the September 30, 2003 measurement date, the Company reduced...

  • Page 104
    ... health care, life insurance and other postretirement benefits to retired U.S. employees. Net periodic postretirement benefit expenses were $42 million, $38 million and $25 million in 2003, 2002 and 2001, respectively. The liabilities recognized on the Consolidated Balance Sheets for the Company...

  • Page 105
    ... Company during 2003, 2002 and 2001 were $1.2 billion, $0.9 billion and $0.5 billion, respectively, and include estimated tax payments and cash settlements relating to prior tax years. The items comprising comprehensive income in the Consolidated Statements of Shareholders' Equity are presented net...

  • Page 106
    ... insurance and annuities, investment certificates and mutual funds. AEB's products and services include providing private, financial institution and corporate banking; personal financial services and global trading. The Company operates on a global basis, although the principal market for...

  • Page 107
    ...consolidated financial statements) (Millions) Travel Related Services American Express Financial Advisors American Express Bank Corporate and Other Adjustments and Eliminations Consolidated 2003 Revenues (GAAP basis) $ Net revenues (managed basis) Net investment income Cardmember lending net...

  • Page 108
    ...of charges related to the consolidation of real estate facilities, $35 million of asset impairment charges, $26 million recorded in loss provisions, $25 million in contract termination costs and $24 million of currency translation losses. During the year ended December 31, 2002, the Company adjusted...

  • Page 109
    ...original AEFA charge was reversed due to lower than anticipated insured loss claims. As of December 31, 2003, the Company has incurred costs of approximately $239 million related to the terrorist attacks of September 11th, which are expected to be substantially covered by insurance and, consequently...

  • Page 110
    ... to consolidated financial statements) (Note 22) QUARTERLY FINANCIAL DATA (Unaudited) (Millions, except per share amounts) 2003 12/31 9/30 6/30 3/31 12/31 2002 9/30 6/30 3/31 Quarters Ended Revenues Pretax income before accounting change Net income(a) Earnings per common share:(a) Income before...

  • Page 111
    ...their findings to management and the Board of Directors throughout the year. The Company's independent auditors are engaged to express an opinion on the year-end financial statements and, with the coordinated support of the internal auditors, review the financial records and related data and test...

  • Page 112
    ... and Board of Directors of American Express Company We have audited the accompanying consolidated balance sheets of American Express Company as of December 31, 2003 and 2002, and the related consolidated statements of income, shareholders' equity, and cash ï¬,ows for each of the three years in...

  • Page 113
    ... change Net income(a) Return on average shareholders' equity(b) Balance Sheet Cash and cash equivalents Accounts receivable and accrued interest, net Investments Loans, net Total assets Customers' deposits Travelers Cheques outstanding Insurance and annuity reserves Short-term debt Long-term debt...

  • Page 114
    ... Corporation David C. House Group President Global Network and Establishment Services and Travelers Cheque and Prepaid Services Group Kenneth I. Chenault Chairman and Chief Executive Officer American Express Company Alfred F. Kelly, Jr. Group President U.S. Consumer and Small Business Services...

  • Page 115
    ...YIELD SAVINGS AMERICAN EXPRESS WORLD SERVICE & DESIGN® BLUE FROM AMERICAN EXPRESS® BLUE CASH® CENTURION® CARD GLADIATOR HEAD® DESIGN MEMBERSHIP REWARDS® MEMBERSHIP REWARDS OPTIONS® OPEN: THE SMALL BUSINESS NETWORK SM PLATINUM CARD® TRAVELFUNDS® YOUR REWARD® ©2004 American Express Company...

  • Page 116
    AMERICAN EXPRESS COMPANY 200 VESEY STREET NEW YORK, NY 10285 212.640.2000 www.americanexpress.com