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RIGHT for the TIMES
AMERICAN EXPRESS COMPANY / ANNUAL REPORT 2009

Table of contents

  • Page 1
    RIGHT for the TIMES AMERICAN EXPRESS COMPANY / ANNUAL REPORT 2009

  • Page 2
    AMERICAN EXPRESS CONSOLIDATED FINANCIAL HIGHLIGHTS (Mpllpons, except per share amounts, percentages and employees) TOTAL REVENUES NET OF INTEREST EXPENSE INCOME FROM CONTINUING OPERATIONS LOSS FROM DISCONTINUED OPERATIONS NET INCOME RETURN ON AVERAGE EQUITY TOTAL ASSETS SHAREHOLDERS' EQUITY DILUTED...

  • Page 3
    Everyone is talking about "the new normal," a time of slower growth as consumers and businesses around the world recover from the recent financial ...'s challenges and to seize tomorrow's opportunities. In a changing world, we have a business model, products and services that are RIGHT for the TIMES.

  • Page 4
    ...for SMART CHOICES THESE DAYS, ESPECIALLY, people want more control over their money. American Express has the solutions. Our pay-in-full charge card and money management tools encourage financial responsibility. And we offer a wide range of cards with rewards and benefits that provide premium value...

  • Page 5
    ... HAVE BEEN BATTERED, so how do you think merchants feel? They need partners who can help them reach more customers. We are marketing and information management experts whose unique insights help merchants build their businesses. And we have the highest-spending cardmembers of any major network.

  • Page 6
    ... for PERSONAL SERVICE DAY AND NIGHT, we make things happen. We've found tired travelers a bed, helped celebrate forgotten anniversaries, personally delivered replacement cards, located doctors who speak your language, and helped stranded cardmembers get home safely. All over the world, we go above...

  • Page 7
    the RIGHT TIME for BEING CONNECTED WE MAKE CONNECTIONS for our customers: access to one-of-a-kind events and experiences, special offers from their favorite merchants, and online communities where they can share insights and knowledge. We help our customers do more, learn more and achieve more.

  • Page 8
    ...our customers, thanks for staying loyal to American Express and letting us serve you as best we can. To our shareholders, thanks for having faith in us when our stock dove, rebounded, and then closed the year as the best performer in the Dow. And to our employees, thanks for helping American Express...

  • Page 9
    ... drop in revenues for the year, as individuals and companies cut back on spending and travel. We also faced higher credit losses as more cardmembers had trouble paying their bills. These developments had a direct impact on our bottom line. 125 PERCENT Total return on AXP stock for 2009 OUR VISION...

  • Page 10
    ... spent on American Express cards, declined in 2009 as consumers and businesses cut back on spending in the difficult economy. Cards-in-force also declined, in part because the company cancelled 3.3 million inactive accounts during the year. 71.0 78.0 86.4 NEW PREMIER REWARDS Gold Card lets users...

  • Page 11
    ... delivers more value to our customers. at-risk accounts, improve decision-making, and • Expanded our network of merchants who help cardmembers who were going through accept American Express cards and partners temporary financial hardship. The write-off rate in our managed worldwide who issue them...

  • Page 12
    ... our models, and developing a broad set of programs to manage high-risk customers. We have learned from our experiences and improved our credit and fraud operations-all with the goal MANAGED LOANS 30 DAYS PAST-DUE AS A PERCENT OF TOTAL WORLDWIDE CARDMEMBER LENDING MANAGED BASIS NET WRITE-OFF RATE...

  • Page 13
    ... increased credit lines for some customers, and the $620 billion in spending we authorized during the year was more than any other card issuer. We also provided additional help to cardmembers who were experiencing temporary financial trouble. We expanded our customer care programs, creating...

  • Page 14
    ... years of doing business, will continue to set us apart from the competition. Our closed-loop network gives us valuable insights into the preferences of our customers. We use our marketing and information management capabilities to help merchants attract more customers and give cardmembers access...

  • Page 15
    ... we make a purchase powerful and unique set of assets, including our easier and more secure, facilitate a once-in-a- closed-loop network, information management lifetime experience, replace a lost or stolen item, or capabilities, rewards expertise, and servicing bring in another sale or save another...

  • Page 16
    AMERICAN EXPRESS COMPANY uses our rewards platforms and expertise to build customer loyalty programs for business partners. Business Insights uses our information management skills to help merchants increase their sales. These are the first of a range of new, valuable fee services that we expect to...

  • Page 17
    ... President and Chief Information Officer Stephen Squeri, Global Services unites our U.S. and international cardmember servicing organizations, Global Technologies, and most processing and support functions across the company. Creating this group will heighten our focus on customer service and ensure...

  • Page 18
    ... TO WIN American Express has survived and thrived through booms, busts, wars, technolog y revolutions and cultural change. There's a simple reason why-we never assume things will return to the way they were. Instead, we prepare for a new way forward. Throughout the recent economic crisis, we...

  • Page 19
    ... FINANCIAL RESULTS 18 66 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 67 68 69 73...

  • Page 20
    ... Company's network partners; á,§ merchant acquisition and processing, point-of-sale, servicing and settlement and marketing products and services for merchants; and á,§ fee services, including market and trend analyses along with related consulting services and customer loyalty and rewards programs...

  • Page 21
    ..., frozen credit markets in the first half of the year and high credit losses industry wide. In the first two quarters, the Company's spending and cardmember loan balances declined by double digits as compared to the corresponding periods in 2008 and credit metrics (e.g. past due and write-off rates...

  • Page 22
    ... Payment Services (CPS), General Electric Company's commercial card and corporate purchasing business unit. The Company acquired $2.2 billion in assets and assumed $63 million in liabilities. The total cash consideration of $2.3 The "managed basis" presentation includes on-balance sheet cardmember...

  • Page 23
    ... acquisition date. DISCONTINUED OPERATIONS For the applicable periods, the operating results, assets and liabilities, and cash flows of American Express Bank Ltd. (AEB), which was sold to Standard Chartered PLC (Standard Chartered) in 2008, and American Express International Deposit Company (AEIDC...

  • Page 24
    ... accounting policies that are important to the Consolidated Financial Statements and that require significant management assumptions and judgments. RESERVES FOR CARDMEMBER LOSSES Effect if Actual Results Differ from Assumptions To the extent historical credit experience updated for emerging market...

  • Page 25
    2009 FINANCIAL REVIEW AMERICAN EXPRESS COMPANY RESERVES FOR CARDMEMBER LOSSES (CONTINUED) Effect if Actual Results Differ from Assumptions Description Assumptions/Approach Used 180 days past due. International Card Services (ICS) and Global Commercial Services (GCS) cardmember receivables are ...

  • Page 26
    ... Company believes it has historically benefited through higher revenues, lower cardmember attrition and credit losses and more timely payments. The Company establishes balance sheet reserves that represent the estimated future cost of points earned to date that are ultimately expected to be redeemed...

  • Page 27
    ... are typically benchmark yields, benchmark security prices, credit spreads, prepayment speeds, reported trades and/or broker-dealer quotes, all with reasonable levels of transparency. The pricing services do not apply any adjustments to the pricing models used. In addition, the Company did not apply...

  • Page 28
    ... fair value of the interest-only strip asset including estimates for finance charge yield, credit losses, LIBOR (which determines future certificate interest costs), monthly payment rate and the discount rate. The Company's retained subordinated securities and interest-only strip are classified in...

  • Page 29
    ... benchmark interest rates and credit spreads, the Company assesses whether it has the intent to sell the investment securities, and whether it is more likely than not that the Company will not be required to sell the investment securities before recovery of any unrealized losses. Refer to Note...

  • Page 30
    ... quoted markets. In each case, the valuation models used are consistently applied and reflect the contractual terms of the derivatives, including the period of maturity, and market-based parameters such as interest rates, foreign exchange rates, equity indices or prices, and volatility. Credit...

  • Page 31
    ... cost of equity financing, determined using a capital asset pricing model. The model generates an appropriate discount rate using internal and external inputs to value future cash flows based on the time value of money and the price for bearing the uncertainty inherent in an investment. The Company...

  • Page 32
    ... 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 33
    2009 FINANCIAL REVIEW AMERICAN EXPRESS COMPANY AMERICAN EXPRESS COMPANY CONSOLIDATED RESULTS OF OPERATIONS SUMMARY OF THE COMPANY'S FINANCIAL PERFORMANCE Years Ended December 31, (Millions, except per share amounts and ratio data) SELECTED STATISTICAL INFORMATION(a) Years Ended December 31, (...

  • Page 34
    ... products. AMERICAN EXPRESS COMPANY SELECTED STATISTICAL INFORMATION(a) As of or for the Years Ended December 31, (Billions, except percentages and where indicated) 2009 2008 2007 Worldwide cardmember receivables: Total receivables Loss reserves (millions): Beginning balance Provision Net write...

  • Page 35
    ... in USCS write-offs, the net write-off rate would have been 5.4 percent for 2008. (c) A cardmember account is considered 90 days past billing if payment has not been received within 90 days of the cardmember's billing statement date. In addition, if the Company initiates collection procedures on an...

  • Page 36
    ... after-tax) contribution to the American Express Charitable Fund. Also included in the 2007 results were $66 million ($43 million after-tax) of reengineering costs related to the Company's business travel, prepaid services, international payments business and technology areas. Total Revenues Net of...

  • Page 37
    ... to changes in foreign exchange rates. Assuming no changes in foreign exchange rates, total billed business outside the United States reflected mid-single digit volume increases in Latin America and Asia Pacific, and mid-single digit declines in Canada and Europe. During 2008, discount revenue rose...

  • Page 38
    ... a net loss on sales compared to net gains in the prior year. These impacts were partially offset by higher finance charges and fees due to a greater average balance of securitized loans and lower interest expense due to lower rates paid on investor certificates. Other revenues in 2009 decreased $70...

  • Page 39
    2009 FINANCIAL REVIEW AMERICAN EXPRESS COMPANY benefits expenses, higher occupancy and equipment expenses, increased professional services costs and greater cardmember services expense, partially offset by decreased cardmember rewards expense and lower marketing and promotion expense. Consolidated ...

  • Page 40
    ...to net decreases in cardmember receivables and loans balances and cash provided by the sale of investments attributable to discontinued operations offset by cash used for acquisitions. Cash Flows from Financing Activities The Company's financing activities primarily include issuing and repaying debt...

  • Page 41
    ...having to consolidate the assets (primarily cardmember loans) and liabilities (primarily debt certificates) of the American Express Credit Account Master Trust (the Lending Trust). Both the cardmember loans and the debt will be consolidated by American Express Travel Related Services (TRS), a wholly...

  • Page 42
    ... consideration of debt ratings and regulatory requirements. These infused amounts can affect the capital profile and liquidity levels for American Express' Parent Company (Parent Company). During 2009, the Company returned $855 million in dividends to shareholders, which represents approximately 46...

  • Page 43
    ..., such as commercial paper, are defined as any debt or time deposit with an original maturity of 12 months or less. The Company's short-term funding programs are used primarily to meet working capital needs, such as managing seasonal variations in receivables balances. Short-term borrowing decreased...

  • Page 44
    ... program, makes FDIC-insured CDs and high-yield savings account products available directly to consumers. As of December 31, 2009, the Company held the following deposits: (Billions) The Company's 2009 offerings, which include those made by the Parent Company, Credco, American Express Canada Credit...

  • Page 45
    ... amortization of investor certificates. For additional information about the Company's asset securitizations that could affect the Company's liquidity position, including three-month average excess spread rates and other key metrics, refer to Note 7 to the Consolidated Financial Statements. On March...

  • Page 46
    ...and charge card receivables that could be sold over time through its existing securitization trusts, or pledged in return for secured borrowings to provide further liquidity, subject in each case to applicable market conditions and eligibility criteria. Committed Bank Credit Facilities Cash Readily...

  • Page 47
    ... Company's credit rating. In consideration of all the funding sources described above, the Company believes it would have access to liquidity to satisfy all maturing funding obligations for at least a 12-month period in the event that access to the secured and Parent Company Funding Parent Company...

  • Page 48
    ... to cardmembers as part of established lending product agreements. Total unused credit available to cardmembers does not represent potential future cash requirements, as a significant portion of this unused credit will likely not be drawn. The Company's charge card products have no pre-set limit and...

  • Page 49
    ..., new account approvals, line assignment, balance transfers, cross selling and overall account management and collection. INSTITUTIONAL CREDIT RISK Institutional credit risk arises principally within the Company's Global Corporate Card Services, Merchant Services and Network Services businesses...

  • Page 50
    ...'s net interest margin from prior periods. Foreign exchange risk is generated by cardmember crosscurrency charges, foreign subsidiary equity and foreign currency earnings in international units. The Company's foreign exchange risk is managed primarily by entering into agreements to buy and sell...

  • Page 51
    ... in the amount and in the location needed in a stress event. The Funding and Liquidity Committee manages the forecasts of the Company's aggregate and subsidiary cash positions and financing requirements, the funding plans designed to satisfy those requirements under normal conditions, establishes...

  • Page 52
    ... as described below. TOTAL REVENUES NET OF INTEREST EXPENSE The Company allocates discount revenue and certain other revenues among segments using a transfer pricing methodology. Segments earn discount revenue based on the volume of merchant business generated by cardmembers. Within the USCS...

  • Page 53
    ... sales (millions) 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 30 days past due as a % of total Average receivables Net write-off rate...

  • Page 54
    ... of the year commencing in the second quarter. The write-off and past due rates reflect in part targeted efforts to manage credit performance such as reducing high loan balances, as well as the impact of customer assistance programs, including the re-aging of cardmember accounts meeting certain...

  • Page 55
    ... (assuming the same financing costs). The income statement classifications, however, of specific items will differ. U.S. CARD SERVICES SELECTED FINANCIAL INFORMATION MANAGED BASIS PRESENTATION Years Ended December 31, (Millions) 2009 2008 2007 Discount revenue, net card fees and other: Reported...

  • Page 56
    ... write-off and delinquency rates and higher average managed loan balances, partially offset by the credit-related charge in 2007. (a) See Glossary of Selected Terminology for the definitions of certain key terms and related information. (b) Refer to Calculation of Net Interest Yield on Cardmember...

  • Page 57
    ... 90 days past billing as a % of total(d) Net loss ratio as a % of charge volume Cardmember loans: Total loans 30 days past due loans as a % of total Average loans Net write-off rate Net interest income divided by average loans(e)(f) Net interest yield on cardmember loans(e) (d) A cardmember account...

  • Page 58
    ... REVIEW AMERICAN EXPRESS COMPANY in billed business in 2009 reflected a 6 percent decrease in average spending per proprietary basic cards-in-force and an 8 percent decrease in basic cards-in-force. Assuming no changes in foreign currency exchange rates from 2008 to 2009, billed business decreased...

  • Page 59
    ... 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 billing as a % of total(d) Net loss ratio as a % of charge volume...

  • Page 60
    ...-related gain in 2007. Income Taxes The effective tax rate was 31 percent in 2009 versus 27 percent in 2008 and 28 percent in 2007. 4 Refer to footnote 2 on page 34 under Consolidated Results of Operations for the Three Years Ended December 31, 2009 relating to changes in foreign exchange rates...

  • Page 61
    ... rate-driven interest credit related to internal transfer pricing, which recognizes the merchant services' accounts payable-related funding benefit. Total revenues net of interest expense of $4.1 billion in 2008 were $238 million or 6 percent higher compared to 2007 due to increased discount revenue...

  • Page 62
    ... The Company's largest airline co-brand is Delta Air Lines (Delta) and this relationship includes exclusive co-brand credit card partnerships and other arrangements, including Membership Rewards, merchant acceptance and travel. American Express' Delta SkyMiles Credit Card co-brand portfolio accounts...

  • Page 63
    ... on cards issued by the Company's network partners. Billed business is reflected in the United States or outside the United States based on where the cardmember is domiciled. Capital asset pricing model - Generates an appropriate discount rate using internal and external inputs to value future cash...

  • Page 64
    2009 FINANCIAL REVIEW AMERICAN EXPRESS COMPANY on a straight-line basis over the 12-month card membership period, net of deferred direct card acquisition costs and a reserve for projected membership cancellation. Interest and dividends on investment securities primarily relates to the Company's ...

  • Page 65
    .... The Company calculates Tier 2 capital as the sum of the allowance for receivable and loan losses (limited to 1.25 percent of riskweighted assets) and 45 percent of the unrealized gains on equity securities. Travel sales - Represents the total dollar amount of travel transaction volume for airline...

  • Page 66
    ... the Company's brand; allows the Company to leverage its significant processing scale, expands merchant coverage of the network, provides Global Network Services' bank partners in the United States the benefits of greater cardmember loyalty and higher spend per customer, and merchant benefits such...

  • Page 67
    ... financing exception to Subpart F of the Internal Revenue Code, which could increase the Company's effective tax rate and have an adverse impact on net income; the potential impact of the CARD Act and regulations adopted by federal bank regulators relating to certain credit and charge card practices...

  • Page 68
    ... management and directors of the Company; and á,§ Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal...

  • Page 69
    ... AMERICAN EXPRESS COMPANY 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, cash flows and shareholders' equity...

  • Page 70
    ...- Income Taxes Note 18 - Earnings Per Common Share Note 19 - 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 Expenses Note 20 - Stock Plans Note...

  • Page 71
    CONSOLIDATED STATEMENTS OF INCOME AMERICAN EXPRESS COMPANY Years Ended December 31 (Millions, except per share amounts) 2009 2008 2007 Revenues Non-interest revenues Discount revenue Net card fees Travel commissions and fees Other commissions and fees Securitization income, net Other Total non-...

  • Page 72
    ..., except share data) 2009 2008 Assets Cash and cash equivalents Cash and cash due from banks Interest-bearing deposits in other banks (including securities purchased under resale agreements: 2009, $212; 2008, $141) Short-term investment securities Total Accounts receivable Cardmember receivables...

  • Page 73
    ... stock warrants Repurchase of American Express common shares Dividends paid Net cash provided by (used in) financing activities attributable to discontinued operations Net cash (used in) provided by financing activities Effect of exchange rate changes on cash Net (decrease) increase in cash and cash...

  • Page 74
    ... employee plans Effect of change in accounting principle Cash dividends declared Common, $0.63 per share Balances as of December 31, 2007 Comprehensive income Net income Change in net unrealized securities gains Change in net unrealized derivatives (losses) gains Foreign currency translation...

  • Page 75
    ... COMPANY American Express is a global service company that provides customers with access to products, insights and experiences that enrich lives and build business success. The Company's principal products and services are charge and credit payment card products and travel-related services offered...

  • Page 76
    ... AMERICAN EXPRESS COMPANY yield on the product, and are recognized in interest and fees on loans in the Consolidated Statements of Income. The unamortized net card fee balance for lending products is reported net in cardmember loans on the Consolidated Balance Sheets (refer to Note 5). Travel...

  • Page 77
    ... Accounts Receivable Loans Investment Securities Asset Securitizations Other Assets Other Liabilities Derivative and Hedging Activities Income Taxes Details of Certain Consolidated Statements of Income Details of Certain Consolidated Statements of Income Stock Plans Regulatory Matters and Capital...

  • Page 78
    ... (Standard Chartered) and to sell American Express International Deposit Company (AEIDC) through a put/call agreement to Standard Chartered 18 months after the close of the AEB sale. The sale of AEB was completed on February 29, 2008. In the third quarter of 2008, AEIDC qualified to be reported as...

  • Page 79
    ... received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date, and is based on the Company's principal or most advantageous market for the specific asset or liability. GAAP established a three-level hierarchy...

  • Page 80
    ... as comparing prices to the sale prices received from sold securities. Refer to Note 6 for additional fair value information. Retained Subordinated Securities The Company determines the fair value of its retained subordinated securities using discounted cash flow models. The discount rate used is...

  • Page 81
    ...-only strip asset, including estimates for finance charge yield, credit losses, London Interbank Offered Rate (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...

  • Page 82
    ... is estimated using either quoted market prices or discounted cash flows based on the Company's current borrowing rates for similar types of borrowing. NOTE 4 ACCOUNTS RECEIVABLE CARDMEMBER RECEIVABLES Cardmember receivables represent amounts due from charge card customers. These receivables are...

  • Page 83
    ... with the purchase of CPS, Company cash held in an off-balance sheet securitization trust for daily settlement requirements and other receivables due to the Company in the ordinary course of business. (a) For cardmember receivables, represents provision for losses and write-offs consisting...

  • Page 84
    ...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 85
    ...by the difference between cash flows expected to be received from the cardmember discounted at the original contractual interest rates and the carrying value of the cardmember balance. The Company's policy is generally to accrue interest through the date of charge-off (i.e. 180 days past due). Loans...

  • Page 86
    ... in retained subordinated securities from the Company's cardmember loan securitization program. (c) Represents the Company's investment in Industrial and Commercial Bank of China (ICBC). (d) The December 31, 2009 balance includes $1.1 billion (cost basis) of corporate debt obligations issued under...

  • Page 87
    ... 12 months Number of Securities Estimated Fair Value 12 months or more Estimated Fair Value Gross Unrealized Number of Losses Securities (87) (158) (245) (7) (713) (720) Total Estimated Fair Value Gross Unrealized Losses (112) (162) (274) (80) (1,555) (1,635) Ratio of Fair Value to Amortized Cost...

  • Page 88
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AMERICAN EXPRESS COMPANY The gross unrealized losses on state and municipal securities and all other debt securities are attributable to a number of reasons such as issuer specific credit spreads and changes in market interest rates. In assessing default ...

  • Page 89
    ...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 90
    ... are based on market prices at the date of transfer for the sold cardmember loans and on the estimated present value of future cash flows for retained interests. Gains (losses) on sale from securitizations are reported in securitization income, net in the Company's Consolidated Statements of Income...

  • Page 91
    ... cash flows received from the Lending Trust for the years ended December 31: (Millions) 2009 $ 2,244 $81,654 $ 562 2008 $ 9,619 $78,164 $ 543 (Millions, except rates per annum) Finance charge yield Expected credit losses LIBOR Monthly payment rate Discount rate Proceeds from new securitizations...

  • Page 92
    ... cardmember receivables securitized through this entity are not accounted for as sold and continue to be reported as owned assets on the Company's Consolidated Balance Sheets. The related securities issued to third-party investors are reported as long-term debt on the Company's Consolidated Balance...

  • Page 93
    ... of equity financing, estimated using a capital asset pricing model, to discount future cash flows for each reporting unit. The Company believes the discount rates used appropriately reflect the risks and uncertainties in the financial markets generally and specifically in the Company's internally...

  • Page 94
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AMERICAN EXPRESS COMPANY OTHER INTANGIBLE ASSETS Intangible assets are amortized over their estimated useful lives of 1 to 22 years. The Company reviews intangible assets for impairment quarterly and whenever events and circumstances indicate that their ...

  • Page 95
    ... by deposit type offered by the Company as of December 31 as follows: (Millions) 2009 $196 - $196 2008 $ 894 153 $1,047 U.S. 2009 2008 Non-U.S. Total $10,498 15,081 710 $26,289 $ 7,247 6,258 1,981 $15,486 U.S. retail deposits: Cash sweep and savings accounts Certificates of deposit Institutional...

  • Page 96
    ...85% 0.57% Year-End Effective Interest Rate with Swaps(a)(b) - - 0.85% 2008 Year-End Stated Rate on Debt(a) 2.20% 1.30% 1.90% 2.11% Year-End Effective Interest Rate with Swaps(a)(b) - - 1.88% Outstanding Balance Commercial paper(c) Federal funds purchased Other short-term borrowings(d) Total $ 975...

  • Page 97
    ...2008 Year-End Stated Rate on Debt(b) Year-End Effective Interest Rate with Swaps(b)(c) Maturity Dates American Express Company (Parent Company only) Fixed Rate Senior Notes Floating Rate Senior Notes Subordinated Debentures(d) American Express Travel Related Services Company, Inc. Fixed Rate Senior...

  • Page 98
    ...) American Express Travel Related Services Company, Inc. American Express Credit Corporation American Express Centurion Bank American Express Bank, FSB American Express Receivables Financing Corporation V LLC Other Total As of December 31, 2009 and 2008, the Company maintained total bank lines of...

  • Page 99
    ... liabilities Employee-related liabilities(a) Rebate accruals(b) Deferred charge card fees, net Other(c) Total of future redemption costs. An ultimate redemption rate and weighted average cost per point are key factors used to approximate the Membership Reward liability. Management uses models to...

  • Page 100
    ...-rate funding, the majority of which are linked to LIBOR. Foreign exchange risk is generated by cardmember crosscurrency charges, foreign currency balance sheet exposures, translation of foreign subsidiary equity, and foreign currency earnings in international units. The Company's foreign exchange...

  • Page 101
    ... 31, 2009, foreign exchange contracts also include foreign currency derivatives embedded in certain operating agreements. (b) Represents an equity-linked derivative embedded in one of the Company's investment securities. (c) GAAP permits the netting of derivative assets and derivative liabilities...

  • Page 102
    ...on occasion foreign currency denominated debt, as hedges of net investments in certain foreign operations. These instruments reduce exposure to changes in currency exchange rates on the Company's investments in non-U.S. subsidiaries. The effective portion of the gain or loss on net investment hedges...

  • Page 103
    ... 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 Company has certain operating agreements whose payments may be linked to a market rate or price, primarily foreign currency...

  • Page 104
    ... the Company's Consolidated Balance Sheets. (c) Includes Credit Card Registry, Return Protection, Account Protection and Merchant Protection, which the Company offers directly to cardmembers. (d) Other primarily includes guarantees related to the Company's business dispositions, real estate, and tax...

  • Page 105
    ... values at the date of issuance. As a pre-condition of the repurchase of the Preferred Shares, the Treasury Department and the Company's Banking Regulator required that the Company raise capital in the public markets. As a result, the Company issued $3.0 billion of non-guaranteed senior debt on May...

  • Page 106
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AMERICAN EXPRESS COMPANY NOTE 15 CHANGES IN ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME Accumulated other comprehensive (loss) income (OCI) is a balance sheet item in the Shareholders' Equity section of the Company's Consolidated Balance Sheets. It is ...

  • Page 107
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AMERICAN EXPRESS COMPANY (Millions), net of tax(a) Net Unrealized Gains (Losses) on Investment Securities (699) 1,351 (145) Net Unrealized Gains (Losses) on Derivatives (80) (22) 74 Foreign Currency Translation Adjustments (368) Net Unrealized Pension ...

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    ... to further reduce the Company's cost structure. This restructuring was for the elimination of approximately 7,000 positions or approximately 10 percent of its total worldwide workforce. These reductions primarily occurred across business units, markets and staff groups focusing on management and...

  • Page 109
    ... expiration in 2018. The following table summarizes the Company's restructuring charges, net of adjustments, by reportable segment for the year ended December 31, 2009, and the cumulative amounts relating to the restructuring programs that were in progress during 2009 and initiated at various dates...

  • Page 110
    ...percent to the Company's actual income tax rate for the years ended December 31 on continuing operations was as follows: 2009 Combined tax at U.S. statutory federal income tax rate Increase (Decrease) in taxes resulting from: Tax-exempt income State and local income taxes, net of federal benefit Non...

  • Page 111
    ... at the reporting date. The Company adjusts the level of unrecognized tax benefits when there is new information available to assess the likelihood of the outcome. The Company is under continuous examination by the Internal Revenue Service (IRS) and tax authorities in other countries and states in...

  • Page 112
    ... common equity and consolidated net income. In that circumstance the Company would reflect the additional common shares in the EPS computation. NOTE 19 DETAILS OF CERTAIN CONSOLIDATED STATEMENTS OF INCOME LINES The following is a detail of other commissions and fees for the years ended December...

  • Page 113
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AMERICAN EXPRESS COMPANY The following is a detail of marketing, promotion, rewards and cardmember services for the years ended December 31: (Millions) NOTE 20 STOCK PLANS STOCK OPTION AND AWARD PROGRAMS Under the 2007 Incentive Compensation Plan and ...

  • Page 114
    ... CONSOLIDATED FINANCIAL STATEMENTS AMERICAN EXPRESS COMPANY 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 generally vest 25 percent per year...

  • Page 115
    ... employees receive payments at the time of retirement or termination under applicable labor laws or agreements. The Company complies with the minimum funding requirements in all countries. The Company sponsors the U.S. American Express Retirement Plan (the Plan) for eligible employees in the United...

  • Page 116
    ... 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 Net actuarial loss: Reclassified to earnings from equity(a) Losses in current year(b) Net actuarial loss, pretax...

  • Page 117
    ...asset class returns and long-term inflation. The discount rate assumptions for the Company's significant defined benefit plans are determined using a model consisting of bond portfolios that match the cash flows of the plan's projected benefit payments based on the plan participants' service to date...

  • Page 118
    ...(19) (1) (20) (2) (22) $38 Hedge Funds $63 (3) (9) (12) (43) (55) $8 Beginning fair value, January 1, 2009 Actual net losses on plan assets: Held at the end of the year Sold during the year Total net losses Net purchases, sales and settlements Net decrease Ending fair value, December 31, 2009 116

  • Page 119
    ... PLANS The Company sponsors unfunded other postretirement benefit plans that provide health care and life insurance to certain retired U.S. employees. Net actuarial loss Net prior service cost Total, pretax effect Tax impact Total, net of taxes The estimated portion of the net actuarial loss...

  • Page 120
    ...model generates a projected benefit obligation that equals the current market value of a portfolio of high-quality zero-coupon bonds whose maturity dates and amounts match the timing and amount of expected future benefit payments. A one percentage-point change in assumed health care cost trend rates...

  • Page 121
    ... new accounting standards is expected to result in a reduction of the Company's capital ratios, such ratios are expected to be above applicable wellcapitalized levels. 2009 2008 On-balance sheet: United States International On-balance sheet(a) Unused lines-of-credit-individuals: United States...

  • Page 122
    ... were made to the American Express Credit Account Master Trust used to securitize credit card receivables issued by both the FSB and Centurion Bank. As a result of these enhancements, the Banks began holding capital against their off balance sheet trust assets. The Company infused $1.4 billion and...

  • Page 123
    ... minimum lease payments under capital leases or other similar arrangements is approximately $12 million per annum from 2010 through 2013, $14 million in 2014 and $40 million thereafter. Refer to Note 22 for a discussion of the Company's customer commitments, related to unused lines-of-credit, as of...

  • Page 124
    ... 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 programs...

  • Page 125
    ... CONSOLIDATED FINANCIAL STATEMENTS AMERICAN EXPRESS COMPANY The following table presents certain selected financial information as of December 31, 2009, 2008 and 2007 and for each of the years then ended. (Millions, except where indicated) USCS ICS GCS GNMS Corporate & Other(a) Consolidated...

  • Page 126
    ... STATEMENTS AMERICAN EXPRESS COMPANY Total Revenues Net of Interest Expense The Company allocates discount revenue and certain other revenues among segments using a transfer pricing methodology. Segments earn discount revenue based on the volume of merchant business generated by cardmembers...

  • Page 127
    ... Balance Sheets As of December 31 (Millions) PARENT COMPANY Parent Company - Condensed Statements of Income Years Ended December 31 (Millions) 2009 $ 5,679 530 14,677 523 - $ 2008 3 594 12,563 1,153 238 2009 2008 2007 Assets Cash and cash equivalents Investment securities Equity in net assets...

  • Page 128
    ... STATEMENTS AMERICAN EXPRESS COMPANY Parent Company - Condensed Statements of Cash Flows Years Ended December 31 (Millions) 2009 2008 2007 Cash Flows from Operating Activities Net income Adjustments to reconcile net income to cash provided by operating activities: Equity in net (income) loss...

  • Page 129
    ... the accounting for a net investment in foreign subsidiaries and (ii) the change in the fair value of certain forward exchange contracts. The results of operations for the quarter ended June 30, 2009 include a $59 million benefit related to the completion of certain account reconciliations. Refer to...

  • Page 130
    ... per share Book value per share Market price per share(d): High Low Close Average common shares outstanding for earnings per share: Basic Diluted Shares outstanding at period end Other Statistics Number of employees at period end (thousands): United States Outside United States Total(e) Number of...

  • Page 131
    COMPARISON OF FIVE-YEAR TOTAL RETURN TO SHAREHOLDERS AMERICAN EXPRESS COMPANY (Cumulative value of $100 invested on December 31, 2004) 04 $160 $140 $120 $100 $80 $60 $40 $20 05 06 07 08 09 Year-end Data* American Express S&P 500 Index S&P Financial Index 2004 $100.00 $100.00 $100.00 2005 $105....

  • Page 132
    ... Chief Information Officer BOARD OF DIRECTORS Daniel F. Akerson Managing Director The Carlyle Group Charlene Barshefsky Senior International Partner WilmerHale Ursula M. Burns Chief Executive Officer Xerox Corporation Kenneth I. Chenault Chairman and Chief Executive Officer American Express Company...

  • Page 133
    ... of the Board of Directors and the American Express Company Code of Conduct, are available on the company's website at http://ir.americanexpress.com . Copies of these materials also are available without charge upon written request to the Secretary's Office at the address above. DIRECT DEPOSIT OF...

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    A MERICAN EXPRESS COMPANY 200 VESEY STREET, NEW YORK, NY 10285 212.640.2000 www.americanexpress.com