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Financial Review
The financial section of American Express Company’s
(the Company) Annual Report consists of this Financial
Review, the Consolidated Financial Statements and the
related notes that follow. The following executive over-
view is designed to provide perspective regarding the
information contained in the financial section. Certain
key terms are defined in the Glossary of Selected
Terminology at the end of this Financial Review.
EXECUTIVE OVERVIEW
American Express Company is engaged in a variety of
businesses comprising three operating segments: Travel
Related Services (TRS), American Express Financial
Advisors (AEFA) and American Express Bank (AEB).
TRS includes a broad range of products including
charge and credit cards; stored value products such as
Travelers Cheques, Travelers Cheque funds cards and
gift cards; travel agency services and travel, entertain-
ment and purchasing expense management services;
network services and merchant acquisition and mer-
chant processing for our network partners and propri-
etary payments businesses. TRS’ various products are
sold globally to diverse customer groups, including
consumers, small businesses, mid-market companies,
large corporations and banking institutions. These
products are sold through various channels including
direct mail, on-line applications, targeted sales-forces
and through direct response advertising.
TRS derives its revenues from a number of sources
including discount revenue from business billed on its
payment products, spread revenue earned on its lend-
ing receivables from customers, network fees and fees
earned through the use of its merchant processing and
merchant acquisition activities, and various revenues
and fees from the sale of payment products, Member-
ship Rewards, travel arrangements, insurance and
other products. In 2004, the TRS segment accounted for
approximately 74 percent and 83 percent of the Com-
pany’s total revenues and net income, respectively.
AEFA is comprised primarily of asset management and
insurance businesses whose products are principally
offered through its network of over 12,000 financial
advisors. In 2004, the AEFA segment accounted for
approximately 24 percent and 21 percent of the Com-
pany’s total revenues and net income, respectively.
On February 1, 2005, the Company announced plans
to pursue a spin-off of AEFA to shareholders. Share-
holders would receive 100 percent of the common
shares of American Express Financial Corporation
(AEFC), through which the financial advisors business
is conducted. The transaction is intended to be tax-free
to shareholders and is expected to be completed in the
third quarter of 2005, subject to certain conditions,
including necessary regulatory approvals and the
receipt of a favorable tax ruling and/or opinion, as well
as final board approval. See Note 23 to the Consoli-
dated Financial Statements for further discussion of the
proposed spin-off. All discussions that follow describe
the Company’s business and organization as currently
structured.
AEB provides financial products and services to retail
customers, wealthy individuals and financial institu-
tions outside the United States.
The Company creates shareholder value by focusing
on three core elements:
©Driving growth, whether organically, through
related business opportunities or through joint
ventures and acquisitions;
©Delivering returns well above the Company’s cost of
capital; and
©Maintaining stability in results through forward
planning, flexible expense management and risk
management, controls and compliance.
Overall, it is management’s priority to increase share-
holder value over the moderate to long-term by
achieving four long-term financial targets, on average
and over time:
©Earnings per share growth of 12 to 15 percent,
©Return on equity of 18 to 20 percent,
©Revenue growth of 8 percent, and
©Return to shareholders of 65 percent of capital
generated.
For both 2004 and 2003, the Company exceeded all of
these long-term financial targets, illustrating the benefits
of the strong business momentum achieved through the
business-building investments made over the past few
years. Assuming the completion of the AEFA spin-off
discussed above, the Company plans to raise its return
on equity target to 28 to 30 percent while maintaining
a 65 percent payout of free capital generated.
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.” This
information, which should be read only as a supple-
AXP
AR.04
26
Financial Review