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american express company
annual report 2008

Table of contents

  • Page 1
    american express company annual report 2008

  • Page 2
    ... Net income Return on average equity Total assets Shareholders' equity Diluted earnings per common share from continuing operations Diluted loss per common share from discontinued operations Diluted earnings per share Cash dividends declared per share Book value per share Average common shares...

  • Page 3
    american express company to our shareholders in a year when the economy spiraled from merely bad to the point of evoking comparisons with the Great Depression, there was no escaping the impact on our business. Virtually everyone has felt the effects of the historic decline in real estate values, ...

  • Page 4
    ... of our revenue from transaction fees when American Express cards are used to make purchases, so cardmember spending is an important barometer of our business. In 2008, worldwide spending on American Express cards rose to $683 billion, or 6 percent above last year. Although we outperformed the other...

  • Page 5
    ... home prices and higher unemployment. We have remained disciplined in our underwriting standards. For example, the average credit scores of new U.S. cardmembers joining American Express have remained stable over the past several years. Our overall customer base continues to be high quality in terms...

  • Page 6
    ... ï¬,exibility and security. That is why we decided to apply for bank holding company status, which the Federal Reserve Board approved in November. For many years, American Express has had banking subsidiaries that issue cards and fund cardmember loans. Becoming a bank holding company, and thereby...

  • Page 7
    ... individual investors has been very positive. Without the benefit of any direct marketing, a brokered CD program we launched in early October attracted more than $6 billion by year-end. We also raised another $7 billion by offering FDIC-insured savings deposits as an investment option for customers...

  • Page 8
    ... credit lines for a smaller number of cardmembers in 2008. Our main goal in managing risk is to maximize profitable growth. This means allowing good spending and continuing to lend responsibly. Every time a cardmember uses his or her American Express Card to make a purchase, we are extending credit...

  • Page 9
    ..., will help extend the reach of our commercial card and expense management services to large and midsize companies. Signing a new partnership agreement with Delta Air Lines, the world's largest carrier. The american express and its partners are continually launching new card products and updating...

  • Page 10
    ..., as well as card acceptance and participation in American Express' Membership Rewards program. The recent merger between Delta and Northwest Airlines also creates an opportunity for us to increase customer acquisition and grow spending in the Midwest. Forging new co-branded rewards partnerships in...

  • Page 11
    ... purchasing and travel costs; our classic pay-in-full charge card product, which encourages financial responsibility; Membership Rewards and other rewardsbased programs that enable cardmembers to get more value for their spending; our wide array of proprietary and partner-issued airline co-brand...

  • Page 12
    ... more high-value consumer and business-to-business customers, providing them with excellent service, enhancing the rewards programs and products we offer to them, and creating new ways and places for them to use American Express cards. We will use our global reach and powerful brand to form new and...

  • Page 13
    ... 120 financial review management 's report on internal control over financial reporting report of independent registered public accounting firm index to consolidated financial statements consolidated financial statements notes to consolidated financial statements consolidated five-year summary of...

  • Page 14
    ...-Business Group offers business travel, corporate cards and other expense management products and services; network services for the Company's network partners; and merchant acquisition and merchant processing, point-of-sale, servicing and settlement and marketing products and services for merchants...

  • Page 15
    ..., management will have greater visibility into its capital requirements. At that time, the Company will provide updated long-term ROE and capital distribution targets. current economic environment/outlook During the latter half of 2008, concerns over the availability and cost of credit, a historic...

  • Page 16
    ...after-tax) of losses for markto-market adjustments and sales associated with the AEIDC investment portfolio during 2008 and 2007, respectively. Refer to Note 2 to the Consolidated Financial Statements for further discussion of the Company's acquisitions and dispositions. financial summary A summary...

  • Page 17
    ... Managed Basis Presentation." Certain reclassifications of prior period amounts have been made to conform to the current presentation throughout this Annual Report. Certain of the statements in this Annual Report are forward-looking statements within the meaning of the Private Securities Litigation...

  • Page 18
    ... based upon models that analyze specific portfolio statistics, including average write-off rates for various stages of receivable aging (i.e., current, 30 days, 60 days, 90 days) over a 24-month period and average bankruptcy and recovery rates. These reserves reflect management's judgment regarding...

  • Page 19
    ... affected by the mix of rewards redeemed. Management uses models to estimate ultimate redemption rates based on historical redemption statistics, card product type, year of program enrollment, enrollment tenure, and card spend levels. These models incorporate sophisticated statistical and actuarial...

  • Page 20
    ... models used, nor does the Company apply any adjustments to prices received from the pricing services. As of December 31, 2008, all of the Company's investment securities are classified in Level 2 of the fair value hierarchy. See further in Note 5 to the Company's Consolidated Financial Statements...

  • Page 21
    ... loans. Management utilizes certain estimates and assumptions to determine the fair value of the interest-only strip assets including estimates for finance charge yield, credit losses, LIBOR (which determines future certificate interest costs), monthly payment rate and the discount rate. The Company...

  • Page 22
    ...'s Enterprise-wide Risk Management Committee guidelines and procedures and determines the risk mitigation actions, when necessary. The Company's derivative instruments are classified in Level 2 of the fair value hierarchy. See further in Note 14 to the Company's Consolidated Financial Statements...

  • Page 23
    ... only subject to review in the courts. As new information becomes available, the Company evaluates its tax positions, and adjusts its unrecognized tax benefits, as appropriate. Deferred Taxes Since deferred taxes measure the future tax effects of items recognized in the financial statements, certain...

  • Page 24
    ... direct acquisition costs) divided by average worldwide proprietary cards-in-force. The card fees related to cardmember loans included in interest and fees on loans were $146 million, $130 million, and $170 million for 2008, 2007, and 2006, respectively. The adjusted average fee per card is computed...

  • Page 25
    ...fees Other Ending balance % of loans % of past due Average loans (d) Net write-off rate (e) Net interest yield on cardmember loans (f) Worldwide cardmember lending - managed basis (g) : Total loans (d) 30 days past due as a % of total Net write-offs - principal (millions) Average loans (d) Net write...

  • Page 26
    ... certain key terms and related information. (b) Includes the GAAP to managed basis securitization adjustments to interest income and interest expense as set forth under U.S. Card Services Selected Financial Information managed basis presentation. (c) Loan balances used to calculate average loans for...

  • Page 27
    ... ($113 million after-tax) of charges associated with certain adjustments made to the Membership Rewards reserve models in the United States and outside the United States; and $72 million ($47 million after-tax) reduction in total interest income, and securitization income, net related to higher than...

  • Page 28
    ...airline ticket prices. Other commissions and fees decreased $110 million or 5 percent to $2.3 billion in 2008 due to the reclassification to other revenues in USCS of certain card service-related fees beginning in the first quarter of 2008 and a lower level of fees related to a lower average balance...

  • Page 29
    ... network, merchant, publishing, and insurance-related revenues, offset by a positive impact in 2006 related to the rebalancing of the Company's Travelers Cheque and Gift Card investment portfolio. Interest income decreased $223 million or 3 percent to $7.2 billion in 2008. Interest and fees on loans...

  • Page 30
    ...of the Company's card and merchant-related activities in Brazil, Malaysia, and Indonesia in 2006, litigation expenses of $74 million related to the settlement with Visa, and a $50 million contribution to the American Express Charitable Fund. Income Taxes The effective tax rate was 20 percent in 2008...

  • Page 31
    ... by the Company across the U.S. Card Services portfolios: •฀ incorporating more sophisticated information in the Company's risk evaluations; •฀ focusing •฀ reducing on areas of high risk, and canceling certain accounts; some lines of credit; the number of customer care professionals...

  • Page 32
    ... Company considers cash items such as money market funds and short-term time deposits as part of its liquidity resources) Mortgage and other asset-backed securities were caused in part by unusually high redemptions of municipal money market funds that occurred beginning September 2008. The Company...

  • Page 33
    ... 31, 2008, related to the asset-backed securities classified as available-for-sale. Money Market Mutual Fund The Company owned a $500 million investment in the Primary Reserve Fund (the Fund), a money market fund, at the time the net asset value of the Fund fell below $1 per share in September 2008...

  • Page 34
    ... its assets and meet operating requirements; and programs that enable the Company to meet its obligations for at least a 12 month period should some or all of its funding sources become inaccessible. •฀ Liquidity Risk-Based Capital Tier 1 American Express Company Centurion Bank FSB (a) Total...

  • Page 35
    ... capital at targeted levels in consideration of debt ratings and regulatory requirements. These infused amounts can affect the capital and liquidity levels for American Express' Parent Company (Parent Company). During 2008, the Company returned approximately 35 percent of total capital generated to...

  • Page 36
    ... set of funding sources. The recent turmoil in the money and capital markets during 2008 resulted in changes to the mix and cost of financing the Company obtained from its traditional funding sources, as well as the establishment and expansion of its retail deposit-taking activities. 34 share...

  • Page 37
    ...Dominion Bond Rating Services (DBRS). Recently, three of the four credit rating agencies that rate the Company provided updates on the Company's ratings as follows: •฀ Moody's lowered the Long-term Senior ratings of the Company from A1 to A2, American Express Travel Related Services Company, Inc...

  • Page 38
    ... in amounts that fully qualify for FDIC insurance protection. The Company's deposits are currently gathered through distribution arrangements with other firms providing brokerage and investment services to individuals. The Company believes it can use the American Express brand name to expand its...

  • Page 39
    ... Bank, FSB, American Express Receivables Financing Corporation LLC V (the Charge Trust) and the American Express Credit Account Master Trust (the Lending Trust), are presented in the following table on both a GAAP and managed basis: (Billions) Amount long-term debt programs In 2008, the Company...

  • Page 40
    ... to current market servicing fees. Any billed finance charges related to the investors' portion of securitized cardmember loans are reported as other assets on the Company's Consolidated Balance Sheets. At December 31, the Lending Trust held total assets of: (Billions) Assets Liabilities 2008...

  • Page 41
    ... are not limited to, the Company's cash and readily-marketable securities, an undrawn committed conduit facility to purchase securitized credit card receivables, secured borrowing from the Federal Reserve Bank of San Francisco through the Federal Reserve discount window and the Term Auction Facility...

  • Page 42
    ... discount window are significant sources within the Company's liquidity plan. Conduit Facility The conduit facility is a $5 billion committed bank agreement that gives the Company the right to sell up to $5 billion face amount of AAA-rated certificates issued from the American Express Credit Account...

  • Page 43
    ...maturing obligations and fund normal business operations for at least a 12-month period in the event that access to the secured and unsecured fixed income capital markets is completely interrupted for that length of time. Refer to Note 6 to the Consolidated Financial Statements. These events are not...

  • Page 44
    ... off-balance sheet arrangements. guarantees The Company's principal guarantees are associated with cardmember services to enhance the value of owning an American Express card. At December 31, 2008, the Company had guarantees totaling approximately $69 billion related to cardmember protection plans...

  • Page 45
    ... business unit risk management processes. However, risks that are large, new, or with enterprise-wide implications receive enhanced scrutiny. roles and responsibilities The ERMC is chaired by the Company's Chief Risk Officer who reports directly to the President of American Express Company, who...

  • Page 46
    ...multiple geographies, occupations, industries and levels of net worth. The Company benefits from the attractive profile of its cardmembers, which is driven by brand positioning, underwriting, and customer management policies, premium customer servicing, and product reward features. The risk in these...

  • Page 47
    ... the U.S. dollar), based on the 2008 year-end positions. This effect, which is calculated using a static asset liability gapping model, is primarily determined by the volume of variable rate funding of charge card and fixed-rate lending products for which the interest rate exposure is not managed by...

  • Page 48
    ... through direct or indirect financial loss, brand damage, customer dissatisfaction, or legal or regulatory penalties. Current areas of significant focus include data protection, antimoney laundering, vendor risk, impact of reengineering efforts, financial reporting risk and both internal and...

  • Page 49
    ... Statements and earlier in the Financial Review. This presentation is consistent with how such charges were reported internally. Financing requirements are managed on a consolidated basis. Funding costs are allocated based on segment funding requirements. Revenues Discount revenue, net card fees...

  • Page 50
    ... Company's Consolidated Balance Sheets. (f ) Loan balances used to calculate average loans for all periods presented have been revised in connection with the Company's conversion to a bank holding company. Specifically, deferred card fees net of deferred direct acquisition costs for cardmember loans...

  • Page 51
    ...rate, and higher volume-driven rewards costs, partially offset by slightly lower marketing and promotion expenses and the charges associated with adjustments made to the U.S. Membership Rewards reserve model in 2006. Salaries and employee benefits and other operating expenses of $3.6 billion in 2008...

  • Page 52
    ...statement classifications, however, of specific items will differ. u.s. card services selected financial information managed basis presentation Years Ended December 31, (Millions) 2008 2007 2006 Discount revenue, net card fees and other: Reported for the period (GAAP) Securitization adjustments...

  • Page 53
    ... certain key terms and related information. (b) Includes the GAAP to managed basis securitization adjustments to interest income and interest expense as set forth under U.S. Card Services Selected Financial Information managed basis presentation. (c) Loan balances used to calculate average loans for...

  • Page 54
    ... of certain key terms and related information. (b) Loan balances used to calculate average loans for all periods presented have been revised in connection with the Company's conversion to a bank holding company. Specifically, deferred card fees net of deferred direct acquisition costs for cardmember...

  • Page 55
    ... Card Services includes a tax benefit of $198 million and $174 million in 2008 and 2007, respectively. The tax benefit is likely to continue, since the Company's internal tax allocation process provides this segment with the consolidated benefit related to its ongoing funding activities outside...

  • Page 56
    ... sales Travel commissions and fees/sales Total segment assets Segment capital (millions) (b) Return on average segment capital(c) Return on average tangible segment capital(c) Cardmember receivables: Total receivables 90 days past due as a % of total Net loss ratio as a % of charge volume 2008...

  • Page 57
    ... expense credit decreased $90 million or 29 percent to $222 million in 2008 due to a lower rate-driven interest credit, primarily in the United States, related to internal transfer pricing, which recognizes the merchant services' accounts payable-related funding benefit. Total revenues net of...

  • Page 58
    ... to the American Express Charitable Fund. Net expense in 2006 also included the $42 million after-tax gain related to the rebalancing of the Travelers Cheque and Gift Card investment portfolio. exposure to airline industry The Company has multiple co-brand relationships and rewards partners, of...

  • Page 59
    ... of new cards to either new or existing cardmembers through marketing and promotion efforts. Cardmember - The individual holder of an issued American Express branded charge or credit card. Interest income - Interest and fees on loans is assessed using the average daily balance method for loans owned...

  • Page 60
    ...on their American Express charge cards as well as any card-related fees. Charge cards - Represents cards that carry no pre-set spending limits and are primarily designed as a method of payment and not as a means of financing purchases. Cardmembers generally must pay the full amount billed each month...

  • Page 61
    ...Represents the total dollar amount of travel transaction volume for airline, hotel, car rental, and other travel arrangements made for consumers and corporate clients. The Company earns revenue on these transactions by charging a transaction or management fee. forward-looking statements This report...

  • Page 62
    ... to control and manage operating, infrastructure, advertising and promotion expenses as business expands or changes, including the ability to accurately estimate the provision for the cost of the Membership Rewards program; fluctuations in foreign currency exchange rates; the Company's ability to...

  • Page 63
    ... applicable to the payment industry; the Company's ability to attract and retain executive management and other key employees in light of the limitations on compensation imposed on participants in the U.S. Department of the Treasury's Capital Purchase Program in which the Company is a participant...

  • Page 64
    .... The Company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United...

  • Page 65
    ... ny report of independent registered public accounting firm the board of directors and shareholders of american express company: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of cash flows and of shareholders' equity present fairly...

  • Page 66
    ...20 - Retirement Plans Note 21 - Income Taxes Note 22 - Earnings Per Common Share (EPS) Note 23 - Details of Certain Consolidated Statements of Income Lines Includes further details of: > Other Commissions and Fees > Other Revenues > Marketing, Promotions, Rewards and Cardmember Services > Other, Net...

  • Page 67
    ...Provisions for losses Charge card Cardmember lending Other Total provisions for losses Total revenues net of interest expense after provisions for losses Expenses Marketing, promotion, rewards and cardmember services Salaries and employee benefits Professional services Other, net Total Pretax income...

  • Page 68
    ... except share data) 2008 2007 Assets Cash and cash equivalents Cash and cash due from banks Interest-bearing deposits in other banks (including federal funds sold and securities purchased under resale agreements: 2008, $141; 2007, $3,878) Short-term investment securities Total Accounts receivable...

  • Page 69
    ...term debt Issuance of American Express common shares Repurchase of American Express common shares Dividends paid Net cash (used in) provided by financing activities attributable to discontinued operations Net cash (used in) provided by financing activities Effect of exchange rate changes on cash Net...

  • Page 70
    ... adjustments Net unrealized pension and other post retirement benefit losses Total comprehensive income Repurchase of common shares Other changes, primarily employee plans Cash dividends declared Common, $0.72 per share Balances at December 31, 2008 See Notes to Consolidated Financial Statements...

  • Page 71
    ...-Business Group offers business travel, corporate cards and other expense management products and services; network services for the Company's network partners; and merchant acquisition and merchant processing, point-of-sale, servicing and settlement and marketing products and services for merchants...

  • Page 72
    ... at the time the client books the travel arrangements. Travel management services revenue is recognized over the contractual term of the agreement. The Company's travel suppliers (for example, airlines, hotels, car rental companies) pay commissions and fees on tickets issued, sales and other...

  • Page 73
    ... is accrued as earned using the effective interest method, which adjusts the yield for security premiums and discounts, fees and other payments, so that the related investment security recognizes a constant rate of return on the outstanding balance throughout its term. These amounts are recognized...

  • Page 74
    ...loans represent amounts due from lending product customers. These loans are recorded at the time a cardmember enters into a point-of-sale transaction with a merchant or when a charge card customer enters into an extended payment arrangement. Cardmember loans are presented on the Consolidated Balance...

  • Page 75
    ... redeemed. Management uses models to estimate ultimate redemption rates based on historical redemption statistics, card product type, year of program enrollment, enrollment tenure, and card spend levels. The provision for the cost of Membership Rewards points is included in marketing, promotion...

  • Page 76
    ... for financial reporting purposes is based on management's best judgment of the most likely outcome resulting from examination given the facts, circumstances and information available at the reporting date. The Company adjusts the level of unrecognized tax benefits when there is new information...

  • Page 77
    ... quoted prices, in active markets for identical assets or liabilities. An example would be a marketable equity security that is actively traded on the New York Stock Exchange. (Level 1) The Company does not have any assets or liabilities classified within Level 1 of the fair value hierarchy. Models...

  • Page 78
    ... following accounting standard, which is effective for the year ending December 31, 2009, the adoption of which will not have a material impact on the Company's financial position or results of operations. •฀ FSP No. FAS 132(R)-1, "Employers' Disclosures about Postretirement Benefit Plan Assets...

  • Page 79
    ... agreement with Standard Chartered to sell American Express International Deposit Company (AEIDC), a subsidiary that issues investment certificates to AEB's customers, 18 months after the close of the AEB sale through a put/call agreement. In the third quarter of 2008, AEIDC qualified to be reported...

  • Page 80
    ... ny For all periods presented, all of the operating results, assets and liabilities, and cash flows of discontinued operations, except as described above, have been removed from the Corporate & Other segment and are presented separately in the Company's Consolidated Financial Statements. Summary...

  • Page 81
    ... from January 1, 2008, forward. The following table presents the AEIDC financial instruments carried at fair value at December 31, 2008 and the respective SFAS No. 157 fair value hierarchy level: Total Carrying Value included in Assets of Discontinued Operations on the Consolidated Balance Sheet at...

  • Page 82
    .... Recoveries of interest and fees were de minimis. (d) Includes foreign currency translation and other adjustments primarily related to the reclassification of waived fee reserves to a contra-cardmember receivable. (a) Represents write-offs of charge card balances consisting of principal (resulting...

  • Page 83
    ... interest. The Company's policy is to accrue interest through the date of charge-off (i.e. 180 days past due). investment securities The following is a summary of investment securities, all of which are classified as available-for-sale at December 31: (Millions) note 5 2008 Cost Gross Unrealized...

  • Page 84
    ... benchmark yields, benchmark security prices, credit spreads, prepayment speeds, reported trades, broker-dealer quotes, all with reasonable levels of transparency. The pricing services do not apply any adjustments to the pricing models used, nor does the Company apply any adjustments to prices...

  • Page 85
    ... fourth quarter of 2008 due to limited 83 market liquidity. However, upon analysis of the projected cash flows of the American Express Credit Account Master Trust (the Lending Trust), the Company expects to collect all of the contractual cash flows due on these securities. Also, the Company has the...

  • Page 86
    ... the transferred cardmember loans through its subsidiary, American Express Travel Related Services Company, Inc., (TRS) and earns a related fee. No servicing asset or liability is recognized at the time of a securitization because the Company receives adequate compensation relative to current market...

  • Page 87
    ...estimates for finance charge yield, credit losses, LIBOR (which determines future certificate interest costs), monthly payment rate and discount rate. On a quarterly basis, the Company compares the assumptions it uses in calculating the fair value of its interest-only strip to observable market data...

  • Page 88
    ... have their loans sold into the Lending Trust. These cash flows are available to pay monthly Lending Trust expense. The issuer rate is reported in discount revenue in the Company's Consolidated Statements of Income. (b) Total Trust Excess Spread Rate, net in the Charge Trust is the net cash flows...

  • Page 89
    ... on the Company's Consolidated Balance Sheets. The Company has rights to this cash, and it will only be used if this cash is required to help pay-off any outstanding principal or interest at maturity or in the event of an early amortization (see below). These fixed rate series, referred to above...

  • Page 90
    ... Cash flow hedge gains reclassified to earnings Foreign currency translation adjustments Reclassification to earnings due to sale of foreign entities Translation gains Net losses related to hedges of investment in foreign operations Pension and other postretirement benefit costs Annual valuation...

  • Page 91
    ... on cash flow hedges Cash flow hedge losses reclassified to earnings Foreign currency translation adjustments Translation losses Net gains related to hedges of investment in foreign operations Pension and other postretirement benefit costs Annual valuation adjustment Curtailment/settlement impact...

  • Page 92
    ... c ompa ny other asse ts The following is a summary of other assets at December 31: (Millions) note 8 Deferred tax assets, net Goodwill Derivative assets Prepaid expenses (a) Subordinated accrued interest receivable (b) Other intangible assets, at amortized cost Restricted cash Other Total 2008...

  • Page 93
    ... contract with Delta Air Lines, respectively. Intangible assets acquired in 2008 and 2007 are being amortized, on average, over 8 years and 16 years, respectively. (b) 2006 amortization expense was $60 million. (c) Primarily includes the write-off of fully amortized intangible assets and foreign...

  • Page 94
    ... Swaps (a)(b) 2007 Year-End Stated Rate on Debt (a) Year-End Effective Interest Rate with Swaps (a)(b) Outstanding Balance Outstanding Balance Commercial paper (c) Federal funds purchased and securities sold under agreements to repurchase Other short-term borrowings (d) Total $7,272 470 1,251...

  • Page 95
    ...-End Stated Rate on Debt (b) Year-End Effective Interest Rate with Swaps (b)(c) Maturity Dates Outstanding Balance (a) Outstanding Balance (a) American Express Company (Parent Company only) Fixed and Floating Rate Senior Notes Subordinated Debentures (d) American Express Travel Related Services...

  • Page 96
    ...annual maturities on long-term debt obligations (based on final maturity dates) at December 31, 2008, were as follows: (Millions) American Express Company (Parent Company only) American Express Travel Related Services Company, Inc. American Express Credit Corporation American Express Centurion Bank...

  • Page 97
    ... Deferred charge card fees, net Other (b) Total 2008 $ 4,643 2,026 1,041 6,882 $14,592 2007 $ 4,785 1,887 1,030 6,105 $13,807 (a) Employee-related liabilities include employee benefit plan obligations and incentive compensation. (b) Other includes accruals for rebates, advertising and promotion...

  • Page 98
    .... At December 31, 2008, the aggregate amount of net assets of subsidiaries that may not be transferred to American Express' Parent Company (Parent Company) was approximately $7 billion. Bank Holding Company Dividend Restrictions As a bank holding company, the Company is limited in its ability to...

  • Page 99
    ... the Market Risk Committee, guided by Board-approved policies covering derivative financial instruments, funding, and investments. For the Company's charge card and fixed-rate lending products, interest rate exposure is managed by using fixedrate debt. For the majority of its cardmember loans, which...

  • Page 100
    ... offset the related foreign exchange gains or losses on the underlying balance sheet exposures. From time to time, the Company may enter into interest rate swaps to specifically manage funding costs related to its proprietary card business. The following table provides the total fair value...

  • Page 101
    ... of lost or stolen cards, and provides for fraud liability coverage; Protection - refunds the price of eligible purchases made with the card where the merchant will not accept the return for up to 90 days from the date of purchase; Protection - provides account protection in the event that...

  • Page 102
    note s to consolidated financial statement s a me r i c a n e xpre s s c ompa ny The Company also has contingent obligations to make payments under contractual agreements entered into as part of the ongoing operation of the Company's business, primarily with co-brand partners. The contingent ...

  • Page 103
    ...(d) Total on-balance sheet (e) Unused lines-of-credit-individuals (f) (a) Individuals primarily include cardmember loans and receivables. (b) Financial institutions primarily include debt obligations of banks, brokerdealers, insurance companies and savings and loan associations. (c) U.S. Government...

  • Page 104
    ... Airlines on October 29, 2008. On December 9, 2008, the Company announced that it had agreed to a 7-year extension of its exclusive co-brand credit card partnerships with Delta, as well as other partnership arrangements, including Membership Rewards, merchant acceptance and travel. American Express...

  • Page 105
    note s to consolidated financial statement s a me r i c a n e xpre s s c ompa ny stock options Each stock option has an exercise price equal to the market price of the Company's common stock on the date of grant and a contractual term of 10 years from the date of grant. Stock options vest ratably, ...

  • Page 106
    ...purposes. (See Net Funded Status as of December 31, 2008 in the table below). The Plan is a cash balance plan and employees' accrued benefits are based on notional account balances, which are maintained for each individual. Employees' balances are credited daily with interest at a fixed-rate that is...

  • Page 107
    ... 31st measurement date Actual return on plan assets Employer contributions Benefits paid Settlements Foreign currency exchange rate changes Net change Fair value of plan assets, end of year Reconciliation of Change in Projected Benefit Obligation (Millions) 2008 $2,480 2007 $2,619 (a) The...

  • Page 108
    ... Gains in current year Net prior service cost Total, pretax (a) Excludes impact of transition to December 31st measurement date of $3 million credit. Benefit Obligations The accumulated benefit obligation is the present value of benefits earned to date by plan participants computed based on...

  • Page 109
    ... used to determine yearly net periodic pension benefit costs were (as of September 30th for all years presented): Discount rates Rates of increase in compensation levels Expected long-term rates of return on assets 2008 5.8% 4.2% 7.6% 2007 5.2% 4.1% 7.8% 2006 5.1% 4.3% 7.8% The Company invests...

  • Page 110
    ... of Accrued Benefit Cost and Total Amount Recognized (Millions) Net actuarial loss Net prior service cost Total, pretax effect Tax impact Total, net of taxes 2008 $ 47 (2) 45 (18) $ 27 2007 $ 66 (4) 62 (25) $ 37 Funded status of the plan Fourth quarter payments Net amount recognized...

  • Page 111
    note s to consolidated financial statement s a me r i c a n e xpre s s c ompa ny Assumptions The weighted-average assumptions used to determine benefit obligations were (as of December 31 and September 30, respectively): Discount rates Health care cost increase rate: Following year Decreasing to ...

  • Page 112
    note s to consolidated financial statement s a me r i c a n e xpre s s c ompa ny The following table presents changes in the unrecognized tax benefits: (Millions) Balance, January 1 Increases: Current year tax positions Tax positions related to prior years Effects of foreign currency translations ...

  • Page 113
    ... dividing net income by the average weighted shares outstanding during the period. Diluted EPS is basic EPS adjusted for the dilutive effect of stock options, RSAs, and other financial instruments that may be converted into common shares. The computations of basic and diluted EPS for the years ended...

  • Page 114
    ... network partnership agreements. It also manages merchant services globally, which includes signing merchants to accept cards as well as processing and settling card transactions for those merchants. This segment also offers merchants point-of-sale products, servicing and settlements and marketing...

  • Page 115
    ... of the overall discount rate. Total interest income and net card fees are directly attributable to the segment in which they are reported. Provisions for Losses The provisions for losses are directly attributable to the segment in which they are reported. Expenses Marketing, promotion, rewards and...

  • Page 116
    note s to consolidated financial statement s a me r i c a n e xpre s s c ompa ny relative level of pretax income, with the exception of certain fourth quarter 2008 severance and other related charges of $133 million from the Company's fourth quarter restructuring initiative. This presentation is ...

  • Page 117
    ... summarizes the Company's restructuring reserves activity for the years ended December 31, 2008, 2007, and 2006: (Millions) Severance (a) Other (b) Total Liability balance at December 31, 2005 Restructuring charges, net of $20 in reversals (c) Payments Other non-cash Liability balance at December...

  • Page 118
    ... s to consolidated financial statement s a me r i c a n e xpre s s c ompa ny The following table summarizes the Company's restructuring charges, net of reversals, by reportable segment for the year ended December 31, 2008, and the cumulative amounts relating to the restructuring programs that were...

  • Page 119
    note s to consolidated financial statement s a me r i c a n e xpre s s c ompa ny Parent Company - Condensed Statements of Cash Flows Years Ended December 31 (Millions) 2008 $ 2,699 2007 $ 4,012 2006 $ 3,707 Cash Flows from Operating Activities Net income Adjustments to reconcile net income to ...

  • Page 120
    ... Capital Purchase Program (CPP) under the Emergency Economic Stabilization Act of 2008 (EESA). Subsequent to year-end 2008, the Company participated in the CPP by issuing to the Treasury Department 3,388,890 shares of the Company's Series A Fixed Rate Cumulative Perpetual 27 Preferred Stock, along...

  • Page 121
    ... current presentation of its financial statements in accordance with the Securities and Exchange Commission's regulations applicable to bank holding companies. In 2007, the Company entered into an agreement to sell its international banking subsidiary, AEB, and its subsidiary that issues investment...

  • Page 122
    ...cumulative total shareholder return on our common shares with the total return on the S&P 500 Index and the S&P Financial Index for the last five years. It shows the growth of a $100 investment on December 31, 2003, including the reinvestment of all dividends. On September 30, 2005, American Express...

  • Page 123
    ... Information Officer board of directors Daniel F. Akerson Managing Director The Carlyle Group Charlene Barshefsky Senior International Partner WilmerHale Ursula M. Burns President Xerox Corporation Kenneth I. Chenault Chairman and Chief Executive Officer American Express Company Peter Chernin...

  • Page 124
    ... listing New York Stock Exchange (Symbol: AXP) independent registered public accounting firm PricewaterhouseCoopers LLP 300 Madison Avenue New York, NY 10017-6204 annual mee ting The Annual Meeting of Shareholders of American Express Company will be held at the company's Greensboro Service Center...

  • Page 125
    american express company 2 0 0 vese y stree t new york, ny 1 0 2 8 5 212. 6 4 0 . 2 0 0 0 www.americanexpress.com