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@americanexpress
AMERICA N E X PRESS C O MPA N Y
ANNUAL REPORT 2010
A NETWORK OF POSSIBILITIES

Table of contents

  • Page 1
    @americanexpress A NETWORK OF POSSIBILITIES AmericAn e xpress compAny ANNUAL REPORT 2010

  • Page 2
    01 02 08 19 Conmolidated Financial Highlightm @americanexpremm Letter to Shareholderm 2010 Financial Remultm

  • Page 3
    AMERICAN EXPRESS COMPANY CONSOLIDATED FINANCIAL HIGHLIGHTS (Mmllmons, 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' ...

  • Page 4
    ...world. As we process payments, we identify customer preferences and market trends and then turn this knowledge into real value. Cardmembers get relevant benefits, rewards, savings and experiences. Merchants get access to high-spending customers and business-building insights. Our network creates new...

  • Page 5
    ... you places, like the front of the line and even backstage. Live for music? Have a passion for fashion? Serious foodie? Our cardmembers receive special offers to rub shoulders with rockers, entertainers, designers, chefs and more. Make us part of your social network and you might even receive a once...

  • Page 6
    ... No competitor does rewards, benefits and service like American Express. So it's no wonder that we lead the industry in customer satisfaction. We help our cardmembers shop with confidence, earn perks, manage their spending and protect their purchases. And we never stop looking for new ways to add...

  • Page 7
    Save big cosT conTrov @americanexpress Control is a good thing when it comes to spending. We help mid-size companies and large corporations save money by streamlining their billing and payments processes, improving data management and accessing supplier discounts. Many companies turn to us for ...

  • Page 8
    ... BuivDinG communiTies @americanexpress Big retailers have Black Friday. Online merchants have Cyber Monday. Now Main Street shops across the U.S. have Small Business Saturday. American Express started a national movement to support the small businesses that fuel local economies. The result: an...

  • Page 9
    ...instance, when a major restaurant chain wanted to boost same-store sales, we helped cook up a plan. By analyzing transaction data from our closed-loop network, we pinpointed strategies to increase foot traffic and win new converts. We provide these services while strictly safeguarding customer data.

  • Page 10
    AMERICAN EXPRESS COMPANY TO OUR SHAREHOLDERS Everyone likes a comeback story. Our company's return to growth after the recession was just that and more. We earned $4.1 billion in 2010, nearly double the amount from a year earlier. Sharply higher spending by cardmembers, even in these budget-...

  • Page 11
    ... brand advertising. Spending on cardmember rewards, which help to drive charge volume and credit quality, rose 25 percent. We expanded the sales forces in our commercial card and merchant services organizations, staffed up to grow new fee service businesses, and built out our Enterprise Growth team...

  • Page 12
    ...the world's largest loyalty formula, we continue to generate reengineering platforms, has essentially become a virtual currency. Cardmembers can increasingly redeem benefits and free up funds to invest in growth. their points online for a broad array of purchases directly at merchants' websites. The...

  • Page 13
    ... billion in annual fee-based revenues for the company by the end of 2014. Expanded merchant relatponshpps: Our global merchant network is strong and growing. We added more than one million new merchant locations in 2010. At the same time, our average discount rate, or the fee we charge merchants for...

  • Page 14
    ...'t a new product or service, but a new organization within the company. We formed the Enterprise Growth Group to accelerate our development of alternative payments, mobile capabilities and partnerships, LOANS 30-DAYS PAST DUE AS A PERCENT OF TOTAL WORLDWIDE CARDMEMBER LENDING NET WRITE-OFF RATE...

  • Page 15
    ...Japan, American Express now offers premium co-branded cards with 48 major airlines. Digital Deals The Selects App, launched with partner Nedbank in South Africa, enables cardmembers to access local discounts and special promotions-right from their phones. chinese new year A limited edition Year of...

  • Page 16
    .... While prices and fewer rewards tied to debit products many aspects of financial reform don't affect as the banking industry adjusts to lost revenues. We oppose price controls on principle. our company because of our business model, certain changes directed at the credit card Government regulation...

  • Page 17
    AMERICAN EXPRESS COMPANY SHOP WITH POINTS AT membership rewards Cardmembers enrolled in Membership Rewards can now use their points to pay for all or part of their purchases at Amazon.com. unstaged Award-winning artists John Legend and The Roots were among the headliners of "Unstaged," our ...

  • Page 18
    ...'t offer the rewards, service and benefits they prefer. Ultimately, that limits consumer choice at the point of sale. Merchants choose to accept American Express because they appreciate our overall service and value, including more business from higher-spending customers. And millions of cardmembers...

  • Page 19
    ... the value our network generates for customers and business partners will become more powerful as we apply new technologies. At the same time, growth opportunities outside of traditional charge and credit products- such as prepaid, payroll cards, remittances and virtual currencies-are opening up as...

  • Page 20
    ... core, American Express is a global service company that enriches lives and builds business success for our customers. Our network is more than a transaction gateway. It's a community of consumers, merchants, small businesses, corporate clients and issuing partners. We link them together, using our...

  • Page 21
    ... 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 SELECTED FINANCIAL DATA COMPARISON OF FIVE-YEAR TOTAL RETURN TO SHAREHOLDERS

  • Page 22
    .... 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 has also recently created an Enterprise Growth Group to focus on generating alternative sources...

  • Page 23
    ... the Company's businesses. Cardmember spending levels in 2010 reached record levels by the end of the year. During 2010, the Company continued to see a sharp divergence between the positive growth rates in customer spending on credit cards and lower borrowing levels, due in part to changing consumer...

  • Page 24
    ... and other employee-related costs. The $98 million restructuring charge is pursuant to a plan, approved by the Company's management in December 2010, that resulted in a consolidation of facilities within the Company's global servicing network due to reduced service volumes as a greater number of...

  • Page 25
    ... return on average tangible common equity is a useful measure of profitability of its business. See Consolidated Results of Operations, beginning on page 31, for discussion of the Company's results. Upon adoption of new accounting standards related to transfers of financial assets and consolidation...

  • Page 26
    ... unemployment rate, Gross Domestic Product (GDP), home price indices, non-farm payrolls, personal consumption expenditures index, consumer confidence index, purchasing managers index, bankruptcy filings and the legal and regulatory environment. Due to the shortterm nature of cardmember receivables...

  • Page 27
    AMERICAN EXPRESS COMPANY 2010 FINANCIAL REVIEW RESERVES FOR MEMBERSHIP REWARDS COSTS Description The Membership Rewards program is the largest card-based rewards program in the industry. Eligible cardmembers can earn points for purchases charged on many card products. Many of these card products ...

  • Page 28
    ... within shareholders' equity on the Company's Consolidated Balance Sheets. Investment Securities In the measurement of fair value for the Company's investment securities, even though the underlying inputs used in the pricing models are directly observable from active markets or recent trades of...

  • Page 29
    ... losses. Refer to Note 6 to the Company's Consolidated Financial Statements. Defined Benefit Pension Plan Assets Defined benefit pension plan (the Plan) assets are measured at fair value, changes in which are included in the determination of the Plan's net funded status which is reported in other...

  • Page 30
    ...'s primary derivative instruments include interest rate swaps, foreign currency forward agreements and cross-currency swaps. Derivative instruments are reported at fair value in other assets and other liabilities on the Company's Consolidated Balance Sheets. Changes in fair value are recorded in...

  • Page 31
    ... value of the reporting unit. The discount rate applied approximates the expected 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...

  • Page 32
    ... on the differences between the financial statement and tax bases of assets and liabilities using the enacted tax rates expected to be in effect for the years in which the differences are expected to reverse. A valuation allowance is established when management determines that it is more likely than...

  • Page 33
    ...-in-force (millions)(a) United States Outside the United States Total Average discount rate Average basic cardmember spending (dollars)(b) Average fee per card (dollars)(b) Average fee per card adjusted (dollars)(b) 3.35 $ 3.35 $ 27.5% 35.1% 1.54 $ 1.54 $ 14.6% 17.6% (a) Earnings per common share...

  • Page 34
    ... losses on authorized transactions(a) Net write-offs(b) Other Ending balance % of receivables Net write-off rate - USCS 30 days past due as a % of total - USCS Net loss ratio as a % of charge volume - ICS/GCS(b)(c) 90 days past billing as a % of total - ICS/GCS(b) Worldwide cardmember loans - GAAP...

  • Page 35
    AMERICAN EXPRESS COMPANY 2010 FINANCIAL REVIEW CALCULATION OF NET INTEREST YIELD ON CARDMEMBER LOANS(a) Years Ended December 31, (Millions) Calculation based on 2010 and 2009 GAAP information:(b) Net interest income Average loans (billions) Adjusted net interest income Adjusted average loans (...

  • Page 36
    ...revenue growth versus total billed business growth reflects the relatively faster billed business growth rate of 28 percent related to GNS, where discount revenue is shared with card issuing partners, and higher contra-revenues, including cash-back rewards costs and corporate incentive payments. The...

  • Page 37
    ... fees reflecting decreased owned loan balances and the impacts of various customer assistance programs, in addition to reduced spending-related foreign currency conversion revenues. Securitization income, net decreased $400 million to nil in 2010 compared to 2009, as the Company no longer reports...

  • Page 38
    ... policy for accounts 30 days past due. Cardmember rewards expenses decreased $353 million or 8 percent to $4.0 billion in 2009 from $4.4 billion in 2008, reflecting lower rewardsrelated spending volumes, partially offset by higher redemption rates and costs in Membership Rewards and higher costs...

  • Page 39
    ..., deferred taxes, and stock-based compensation and (ii) changes in the balances of operating assets and liabilities, which can vary significantly in the normal course of business due to the amount and timing of various payments. For the year ended December 31, 2010, net cash provided by operating...

  • Page 40
    ...network. The Company does not offer a debit card linked to a deposit account, but does issue various types of prepaid cards. The Dodd-Frank Reform Act also prohibits credit/debit networks from restricting a merchant from offering discounts or incentives to customers in order to encourage them to use...

  • Page 41
    ... credit and charge card sector also faces continuing scrutiny in connection with the fees merchants pay to accept cards. Although investigations into the way bankcard network members collectively set the "interchange" (that is, the fee paid by the bankcard merchant acquirer to the card issuing bank...

  • Page 42
    ...Company's capital position. 40 Actual 13.7% 10.7% (a) Refer to Note 23 to the Consolidated Financial Statements for further discussion of FSB's Total capital ratio. On December 16, 2010, the Basel Committee on Banking Supervision issued the Basel III rules text, which presents details of global...

  • Page 43
    ...asset-liability management activities. The Company has in place a Funding Policy covering American Express Company and all of its subsidiaries. The Company's proprietary card businesses are the primary asset-generating businesses, with significant assets in both domestic and international cardmember...

  • Page 44
    ... as higher fees related to borrowings under its unused lines of credit. In addition to increased funding costs, declines in credit ratings could reduce the Company's borrowing capacity in the unsecured debt and asset securitization capital markets. The Company believes the change in its funding mix...

  • Page 45
    ... directly with consumers through Personal Savings from American Express. These accounts and balances grew during the year and financed the maturities of CDs issued through thirdparty distribution channels. LONG-TERM DEBT PROGRAMS During 2010, the Company and its subsidiaries issued debt and asset...

  • Page 46
    AMERICAN EXPRESS COMPANY 2010 FINANCIAL REVIEW ASSET SECURITIZATION PROGRAMS The Company periodically securitizes cardmember receivables and loans arising from its card business, as the securitization market provides the Company with cost-effective funding. Securitization of cardmember receivables ...

  • Page 47
    ... secured financing facility sponsored by and with liquidity backup provided by a syndicate of banks. The facility gives the Company the right to sell up to $3 billion face amount of eligible notes issued from the Charge Trust at any time through December 16, 2013. The purchasers' commitments to fund...

  • Page 48
    ... net worth was approximately $13.1 billion, Credco's ratio of combined earnings and fixed charges to fixed charges was 1.54 and Centurion Bank and FSB each exceeded their regulatory capital adequacy guidelines. The drawn balance of $4.1 billion as of December 31, 2010 was used to fund the Company...

  • Page 49
    ... this unused credit will likely not be drawn. The Company's charge card products have no pre-set limit and, therefore, are not reflected in unused credit available to cardmembers. Refer to Note 24 to the Consolidated Financial Statements for discussion regarding the Company's other off-balance sheet...

  • Page 50
    ... risk arises principally from consumer and small business charge cards, credit cards, lines of credit, loans and prepaid products. These portfolios consist of millions of customers across multiple geographies, occupations, industries and levels of net worth. The Company benefits from the highquality...

  • Page 51
    ... that are funded with LIBOR-indexed debt, including asset securitizations. Foreign exchange risk is generated by cardmember crosscurrency charges, foreign subsidiary equity and foreign currency earnings in units outside the United States. The Company's foreign exchange risk is managed primarily by...

  • Page 52
    AMERICAN EXPRESS COMPANY 2010 FINANCIAL REVIEW expected future financing obligations and business requirements, even in the event it is unable to raise new funds under its regular funding programs. The Company balances the trade-offs between maintaining too much liquidity, which can be costly and ...

  • Page 53
    ... in the tables 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, ICS...

  • Page 54
    ...Ended December 31, (Billions, except percentages and where indicated) Card billed business Total cards-in-force (millions) Basic cards-in-force (millions) Average basic cardmember spending (dollars)* U.S. Consumer Travel: Travel sales (millions) Travel commissions and fees/sales Total segment assets...

  • Page 55
    ...and employee benefits and total operating expenses. Marketing, promotion, rewards and cardmember services expenses increased $1.4 billion or 32 percent in 2010 to $5.7 billion, reflecting increased marketing and promotion expenses due to increased investment spending resulting from better credit and...

  • Page 56
    AMERICAN EXPRESS COMPANY 2010 FINANCIAL REVIEW growth also reflects the benefit in 2009 of a revised, more restrictive redemption policy for accounts 30 days past due. Marketing, promotion, rewards and cardmember services expenses decreased $571 million or 12 percent in 2009 to $4.3 billion, due to...

  • Page 57
    ... receivable balance and improved charge card credit performance, partially offset by a higher lending write-off level versus 2008. U.S. CARD SERVICES SELECTED FINANCIAL INFORMATION MANAGED BASIS PRESENTATION Years Ended December 31, (Millions) Discount revenue, net card fees and other: Reported for...

  • Page 58
    ...Years Ended December 31, (Billions, except percentages and where indicated) Card billed business Total cards-in-force (millions) Basic cards-in-force (millions) Average basic cardmember spending (dollars)* International Consumer Travel: Travel sales (millions) Travel commissions and fees/sales Total...

  • Page 59
    ... consolidated tax benefit related to its ongoing funding activities outside the U.S., which is allocated to ICS under the Company's internal tax allocation process. GLOBAL COMMERCIAL SERVICES SELECTED INCOME STATEMENT DATA Years Ended December 31, (Millions) Revenues Discount revenue, net card fees...

  • Page 60
    ... Years Ended December 31, (Billions, except percentages and where indicated) Card billed business Total cards-in-force (millions) Basic cards-in-force (millions) Average basic cardmember spending (dollars)* Global Corporate Travel: Travel sales Travel commissions and fees/sales Total segment assets...

  • Page 61
    ...deferred tax assets associated with certain non-U.S. travel operations. GLOBAL NETWORK & MERCHANT SERVICES SELECTED INCOME STATEMENT DATA Years Ended December 31, (Millions) Revenues Discount revenue, net card fees and other Interest income Interest expense Net interest income Total revenues net of...

  • Page 62
    ... credit related to internal transfer pricing, which recognizes the merchant services' accounts payable-related funding benefit. Total revenues net of interest expense of $3.8 billion in 2009 decreased $411 million or 10 percent compared to 2008 due to decreased discount revenue, net card fees...

  • Page 63
    ... American Express charge cards as well as any card-related fees. Charge cards - Represents cards that generally carry no preset spending limits and are primarily designed as a method of payment and not as a means of financing purchases. Charge cardmembers generally must pay the full amount billed...

  • Page 64
    AMERICAN EXPRESS COMPANY 2010 FINANCIAL REVIEW the applicable account agreement until the outstanding balance is paid or written-off. Loan fees are deferred and recognized in interest income on a straight-line basis over the 12-month card membership period, net of deferred direct card acquisition ...

  • Page 65
    AMERICAN EXPRESS COMPANY 2010 FINANCIAL REVIEW outstanding under network partnership agreements, except for retail co-brand cardmember accounts which have no out-of-store spend activity during the prior 12-month period. Total risk-based capital ratio - Refer to Capital Strategy section for ...

  • Page 66
    ... or changes; • the effectiveness of the Company's risk management policies and procedures, including credit risk relating to consumer debt, liquidity risk in meeting business requirements and operational risks; • changes affecting our ability to accept or maintain deposits due to market demand...

  • Page 67
    ... accordance with authorizations of management and directors of the Company; and • 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...

  • Page 68
    ... EXPRESS COMPANY REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 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...

  • Page 69
    ... 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, Promotion, Rewards and Cardmember Services • Other, Net Expenses Note 20 - Stock Plans Note 21...

  • Page 70
    AMERICAN EXPRESS COMPANY CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31 (Millions, except per share amounts) Revenues Non-interest revenues Discount revenue Net card fees Travel commissions and fees Other commissions and fees Securitization income, net Other Total non-interest revenues ...

  • Page 71
    ... interest entities: 2010, $3,759; 2009, $1,799) Total assets Liabilities and Shareholders' Equity Liabilities Customer deposits Travelers Cheques outstanding Accounts payable Short-term borrowings Long-term debt (includes debt issued by consolidated variable interest entities: 2010, $23,341; 2009...

  • Page 72
    ... A preferred shares Repurchase of American Express 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 financing activities Effect of exchange rate changes on cash Net...

  • Page 73
    AMERICAN EXPRESS COMPANY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Accumulated Other Comprehensive (Loss) Income $ (442) $ Three Years Ended December 31, 2010 (Millions, except per share amounts) Balances as of December 31, 2007 Comprehensive income Net income Change in net unrealized ...

  • Page 74
    ... securities, are accounted for under the cost method. 72 FOREIGN CURRENCY Assets and liabilities denominated in foreign currencies are translated into U.S. dollars based upon exchange rates prevailing at the end of each year. The resulting translation adjustments, along with any related qualifying...

  • Page 75
    ...TO CONSOLIDATED FINANCIAL STATEMENTS fee balance for lending products is reported net in cardmember loans on the Consolidated Balance Sheets (refer to Note 4). Travel Commissions and Fees The Company earns travel commissions and fees by charging clients transaction or management fees for selling and...

  • Page 76
    ... Securities Securitization Income, Net; and Asset Securitization Goodwill and Other Intangible Assets Membership Rewards Derivative Financial Instruments and Hedging Activities Income Taxes Other Non-Interest Revenues Other, Net Expense Stock-based Compensation Legal Contingencies Reportable...

  • Page 77
    ...) 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 a discontinued...

  • Page 78
    ... date, and is based on the Company's principal or most advantageous market for the specific asset or liability. GAAP provides for a three-level hierarchy of inputs to valuation techniques used to measure fair value, defined as follows: • Level 1 - Inputs that are quoted prices (unadjusted...

  • Page 79
    ...-only strip asset, including estimates for finance charge yield, credit losses, London Interbank Offered Rate (LIBOR) (which determined future certificate interest costs), monthly payment rate and discount rate. On a quarterly basis, the Company compared the assumptions it used in calculating...

  • Page 80
    ... enters into a point-of-sale transaction with a merchant. Charge card customers generally must pay the full amount billed each month. Each charge card transaction is authorized based on its likely economics reflecting cardmember's most recent credit information and spend patterns. Global limits are...

  • Page 81
    ...feature of their charge card accounts. These loans have a range of terms such as credit limits, interest rates, fees and payment structures, which can be adjusted over time based on new information about cardmembers and in accordance with applicable regulations and the respective product's terms and...

  • Page 82
    AMERICAN EXPRESS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CREDIT QUALITY INDICATORS FOR LOANS AND RECEIVABLES The following table presents the key credit quality indicators for the years ended December 31: 2010 Net Write-Off Rate 5.8% 1.6% 4.6% 30 Days Past Due as a % of Total 2.1% 1.5% ...

  • Page 83
    ... unemployment rate, Gross Domestic Product (GDP), home price indices, non-farm payrolls, personal consumption expenditures index, consumer confidence index, purchasing managers index, bankruptcy filings and the legal and regulatory environment. Generally, due to the short-term nature of cardmember...

  • Page 84
    ... the International Card Services (ICS) and Global Commercial Services (GCS) segments were written off when 360 days past billing or earlier. During the first quarter of 2010, consistent with applicable bank regulatory guidance, the Company modified its methodology to write off cardmember receivables...

  • Page 85
    ... COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 (losses) recorded in AOCI, net of income tax provisions (benefits). Realized gains and losses are recognized in results of operations upon disposition of the securities using the specific identification method on a trade date basis. Refer...

  • Page 86
    ... municipal securities, higher credit spreads for specific issuers, changes in market benchmark interest rates, or a combination thereof, all as compared to those prevailing when the investment securities were acquired. In assessing default risk on these investment securities, excluding the Company...

  • Page 87
    ... debt securities issued to third parties by the Lending Trust are included on the Company's Consolidated Balance Sheets. Prior period Consolidated Financial Statements have not been revised for this accounting change. The Charge Trust and the Lending Trust are consolidated by American Express Travel...

  • Page 88
    ... on investor certificates, credit losses, contractual servicing fees, other expenses, and the changes in the fair value of the interest-only strip. This amount excludes issuer rate fees on the securitized accounts, which were recorded in discount revenue in the Company's Consolidated Statements of...

  • Page 89
    ...results. The Company uses the expected cost 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...

  • Page 90
    AMERICAN EXPRESS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The changes in the carrying amount of goodwill reported in the Company's reportable operating segments and Corporate & Other were as follows: (Millions) Balance as of January 1, 2009 Other, including foreign currency translation ...

  • Page 91
    ... overdrafts (i.e., primarily timing differences arising in the ordinary course of business), short-term borrowings from banks, as well as interest-bearing amounts due to merchants in accordance with merchant service agreements. (d) The Company did not have any federal funds purchased as of December...

  • Page 92
    ... Outstanding Year-End Stated Rate with Balance(a) Rate on Debt(b) Swaps(b)(c) Year-End Effective Interest Rate with Swaps(b)(c) (Millions, except percentages) American Express Company (Parent Company only) Fixed Rate Senior Notes Subordinated Debentures(d) American Express Travel Related Services...

  • Page 93
    ...follows: (Millions) American American American American American American American Other Express Express Express Express Express Express Express Company (Parent Company only) Travel Related Services Company, Inc. Credit Corporation Centurion Bank Bank, FSB Charge Trust Lending Trust $ 2011 400 1,200...

  • Page 94
    ...-rate funding based on changes in business volumes and mix, among other factors. Foreign exchange risk is generated by cardmember crosscurrency charges, foreign currency balance sheet exposures, foreign subsidiary equity, and foreign currency earnings in units outside the United States. The Company...

  • Page 95
    AMERICAN EXPRESS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS justified through various means, including the use of derivatives such as foreign exchange forward, and cross-currency swap contracts, which can help "lock in" the value of the Company's exposure to specific currencies. Derivatives...

  • Page 96
    ... months. NET INVESTMENT HEDGES A net investment hedge is used to hedge future changes in currency exposure of a net investment in a foreign operation. The Company primarily designates foreign currency derivatives, typically foreign exchange forwards, and on occasion foreign currency denominated debt...

  • Page 97
    ... 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 98
    ... measured against annual billed business volumes. (b) Included as part of other liabilities on 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) Primarily...

  • Page 99
    AMERICAN EXPRESS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 The Board of Directors is authorized to permit the Company to issue up to 20 million preferred shares at a par value of $1.662⁄3 without further shareholder approval. On January 9, 2009, under the United States Department...

  • Page 100
    ...item in the Shareholders' Equity section of the Company's Consolidated Balance Sheets. It is comprised of items that have not been recognized in earnings but may be recognized in earnings in the future when certain events occur. Changes in each component of AOCI for the three years ended December 31...

  • Page 101
    AMERICAN EXPRESS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 16 6 percent of the Company's total worldwide workforce and occurred across all business units, markets and staff groups. Additional restructuring charges of $38 million taken in the third and fourth quarters of 2009 relate ...

  • Page 102
    ... Company's restructuring charges, net of adjustments, by reportable segment for the year ended December 31, 2010, and the cumulative amounts relating to the restructuring programs that were in progress during 2010 and initiated at various dates between 2007 and 2010. 2010 Total Restructuring Charges...

  • Page 103
    ...TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 17 INCOME TAXES The components of income tax expense for the years ended December 31 included in the Consolidated Statements of Income were as follows: (Millions) Current income tax expense (benefit): U.S. federal U.S. state and local Non-U.S. Total current...

  • Page 104
    ...tax benefits: (Millions) Balance, January 1 Increases: Current year tax positions Tax positions related to prior years Effects of foreign currency translations Decreases: Tax positions related to prior years Settlements with tax authorities Lapse of statute of limitations Effects of foreign currency...

  • Page 105
    ... insurance programs, publishing revenues, revenues arising from contracts with Global Network Services (GNS) partners including royalties and signing fees, and other miscellaneous revenue and fees. The following is a detail of marketing, promotion, rewards and cardmember services for the years ended...

  • Page 106
    ... in exchange for employee services based on the grantdate fair value of the award, net of expected forfeitures. Those costs are recognized ratably over the vesting period. STOCK OPTIONS Each stock option has an exercise price equal to the market price of the Company's common stock on the date of...

  • Page 107
    ... benefit plans for its employees. The following table provides a summary of the total cost related to these plans for the years ended December 31: (Millions) Defined benefit pension plan cost Defined contribution plan cost Other postretirement benefit plan cost Net periodic benefit cost...

  • Page 108
    ... 31: Reconciliation of Change in Fair Value of Plan Assets (Millions) Fair value of plan assets, beginning of year 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 $ $ 2010 1,989 177...

  • Page 109
    ... cash flows of the plan's projected benefit payments based on the plan participants' service to date and their expected future compensation. Use of the rate produced by this model generates a projected benefit obligation that equals the current market value of a portfolio of high-quality zero-coupon...

  • Page 110
    ...TO CONSOLIDATED FINANCIAL STATEMENTS Asset Allocation and Fair Value The Benefit Plans Investment Committee (BPIC) is appointed by the Compensation and Benefits Committee of the Company's Board of Directors and has the responsibility of reviewing and approving the investment policies related to plan...

  • Page 111
    ... inputs (Level 3) changed during the years ended December 31: (Millions) Beginning fair value, January 1 Actual net gains (losses) on plan assets: Held at the end of the year Sold during the year Total net gains (losses) Net purchases (sales and settlements) Net increase (decrease) Ending fair value...

  • Page 112
    ... model generates a projected benefit obligation that equals the current market value of a portfolio of high-quality zerocoupon 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 113
    ..., including Membership Rewards, merchant acceptance and travel. American Express' Delta SkyMiles Credit Card co-brand portfolio accounts for approximately 5 percent of the Company's worldwide billed business and less than 15 percent of worldwide cardmember lending receivables. In recent years, there...

  • Page 114
    ... were made to the American Express Credit Account Master Trust used to securitize credit card receivables issued by both 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 $475...

  • Page 115
    ...The legal proceedings and governmental examinations underlying the estimated range will change from time to time and actual results may vary significantly from the current estimate. Based on its current knowledge, and taking into consideration its litigation-related liabilities, the Company believes...

  • Page 116
    ...other consumers. • ICS issues proprietary consumer and small business cards outside the United States. • GCS offers global corporate payment and travel-related products and services to large and mid-sized companies. • GNMS operates a global general-purpose charge and credit card network, which...

  • Page 117
    ... for intersegment activity. 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 118
    ... for staff group support functions. This presentation is consistent with how such charges were reported internally. See further discussion in Note 16 regarding this corporate initiative. Financing requirements are managed on a consolidated basis. Funding costs are allocated based on segment funding...

  • Page 119
    ... Parent Company - Condensed Statements of Income Years Ended December 31 (Millions) Revenues Non-interest revenues Gain on sale of securities Other Total non-interest revenues Interest income Interest expense Total revenues net of interest expense Expenses Salaries and employee benefits Other Total...

  • Page 120
    ... A preferred shares Repurchase of American Express stock warrants Repurchase of American Express common shares Dividends paid Net cash (used in) provided by financing activities Net change in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of...

  • Page 121
    ...in foreign subsidiaries and (ii) a $45 million benefit resulting from 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 122
    ...Accounts receivable, net Loans, net(d) Investment securities(d) Assets of discontinued operations Total assets(c)(d) Customer deposits Travelers Cheques outstanding Short-term borrowings Long-term debt(d) Liabilities of discontinued operations Shareholders' equity(d) Common Share Statistics Earnings...

  • Page 123
    AMERICAN EXPRESS COMPANY COMPARISON OF FIVE-YEAR TOTAL RETURN TO SHAREHOLDERS (Cumulative value of $100 invested on December 31, 2005) (Cumulative value of $100 invested on December 31, 2005) $140 $120 $100 $80 $60 $40 $20 $0 05 06 07 08 09 10 Year-end Data* American Express S&P 500 Index ...

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  • Page 126
    ...Marketing Officer Daniel T. Henry Executive Vice President and Chief Financial Officer Louise M. Parent Executive Vice President and General Counsel William H. Glenn President, Global Merchant Services BOARD OF DIRECTORS Daniel F. Akerson Chairman and Chief Executive Officer General Motors Company...

  • Page 127
    ... account or financial institution on the payment date. Shareholders interested in enrolling in this service should call The Bank of New York Mellon at 1.800.463.5911. STOCK PURCHASE PLAN The BuyDIRECT Plan provides shareholders and new investors with a convenient way to purchase common shares...