American Express 2009 Annual Report Download - page 20

2009 FINANCIAL REVIEW
AMERICAN EXPRESS COMPANY
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 Notes to the
Consolidated Financial Statements. The following discussion
is designed to provide perspective and understanding
regarding the Company’s consolidated financial condition
and results of operations. Certain key terms are defined in the
Glossary of Selected Terminology, which begins on page 61.
This Financial Review and the Notes to Consolidated
Financial Statements have been adjusted to exclude
discontinued operations unless otherwise noted.
EXECUTIVE OVERVIEW
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 to consumers
and businesses around the world. The Company’s range of
products and services include:
폷charge and credit card products;
폷expense management products and services;
폷consumer and business travel services;
폷stored value products such as Travelers Cheques and other
prepaid products;
폷network services for the Company’s network partners;
폷merchant acquisition and processing, point-of-sale,
servicing and settlement and marketing products and
services for merchants; and
폷fee services, including market and trend analyses along
with related consulting services and customer loyalty and
rewards programs.
The Company’s products and services are sold globally to
diverse customer groups, including consumers, small
businesses, middle-market companies, and large corporations.
These products and services are sold through various channels
including direct mail, on-line applications, targeted direct and
third-party sales forces, and direct response advertising.
The Company’s products and services generate the
following types of revenue for the Company:
폷Discount revenue, which is the Company’s largest revenue
source, represents fees charged to merchants when
cardmembers use their cards to purchase goods and
services on the Company’s network;
폷Net card fees, which represent revenue earned for annual
charge card memberships;
폷Travel commissions and fees, which are earned by charging
a transaction or management fee for airline or other travel-
related transactions;
폷Other commissions and fees, which are earned on foreign
exchange conversions and card-related fees and
assessments;
폷Securitization income, net, which is the net earnings related
to cardmember loans financed through securitization
activities;
폷Other revenue, which represents insurance premiums
earned from cardmember travel and other insurance
programs, revenues arising from contracts with Global
Network Services’ (GNS) partners (including royalties and
signing fees), publishing revenues, and other miscellaneous
revenue and fees; and
폷Interest and fees on loans, which principally represents
interest income earned on outstanding balances, and card
fees related to the cardmember lending portfolio.
In addition to funding and operating costs associated with
these types of revenue, other major expense categories are
related to marketing and reward programs that add new
cardmembers and promote cardmember loyalty and
spending, and provisions for anticipated cardmember credit
and fraud losses.
In 2009, to better position the Company to grow its
traditional businesses, and to develop new revenue categories
and emerging payments, the Company implemented the
following organizational changes:
폷Grouped the Company’s global consumer and small
business card-issuing, merchant and network businesses
under the senior leadership of the Vice Chairman of
American Express, which will enable the Company to
sharpen its focus on its strongest growth opportunities,
while maintaining appropriate confidentiality protections;
폷The Company is creating the Enterprise Growth Group,
which will focus exclusively on generating new sources of
fee revenue from existing assets and advancing the
Company’s efforts in emerging payments;
폷Formed a new Global Services Group under the leadership
of the Company’s Group President and Chief Information
Officer, which unites the Company’s U.S. and international
cardmember servicing organizations, as well as most
processing and support functions across the Company
including, among others, technology support and certain
key processing functions in areas such as finance and
human resources. With this change to Global Services, the
Company is organizing support functions by process rather
than business unit, which the Company expects will
streamline costs, reduce duplication of work, better
integrate skills and expertise, and improve customer
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