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AMERICAN EXPRESS COMPANY
2011 FINANCIAL REVIEW
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 48.
This Financial Review and the Notes to Consolidated Financial
Statements have been revised to exclude discontinued operations
unless otherwise noted.
EXECUTIVE OVERVIEW
BUSINESS INTRODUCTION
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;
폷merchant acquisition and processing, servicing and settlement,
and point-of-sale, marketing and information products and
services for merchants; and
폷fee services, including market and trend analyses and related
consulting services, fraud prevention services, and the design
of customized customer loyalty and rewards programs.
The Company’s products and services are sold globally to diverse
customer groups, including consumers, small businesses,
mid-sized companies and large corporations. These products and
services are sold through various channels, including direct mail,
online applications, in-house and third-party sales forces and
direct response advertising.
We compete in the global payments industry with charge,
credit and debit card networks, issuers and acquirers, as well as
evolving alternative payment mechanisms, systems and products.
As the payments industry continues to evolve, we are facing
increasing competition from non-traditional players, such as
online networks, telecom providers and software-as-a-service
providers, who leverage new technologies and customers’
existing charge and credit card accounts and bank relationships
to create payment or other fee-based solutions. In 2009, the
Company established the Enterprise Growth Group, which
focuses on generating alternative sources of global revenues in
areas such as online and mobile payments and fee-based services.
In addition to the Enterprise Growth Group, the Company is
seeking to transform all of its businesses for the digital
marketplace, including increasing the Company’s share of online
spend across all products and enhancing customers’ digital
experience.
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 at
merchants 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;
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 loans 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
cardmember credit and fraud losses.
FINANCIAL TARGETS
The Company seeks to achieve three financial targets, on average
and over time:
폷Revenues net of interest expense growth of at least 8 percent;
폷Earnings per share (EPS) growth of 12 to 15 percent; and
폷Return on average equity (ROE) of 25 percent or more.
If the Company achieves its EPS and ROE targets, it will seek to
return on average and over time 50 percent of the capital it
generates to shareholders as dividends or through the
repurchases of common stock, which may be subject to certain
regulatory restrictions as described herein.
14