American Express Company · NYSE:AXP
American Express — Investor Day (August 2002)
86 slides from American Express's investor day presentation, Aug 1, 2002
Slide 1: Financial Community Presentation
Financial Community Presentation — Ken Chenault July 31, 2002
Slide 2: Agenda
Agenda e Company Performance e Shareholder Value Creation — Operating Margins — Capital Management — Business Growth © Q&A Ken Chenault Gary Crittenden Ken Chenault Management
Slide 3: Slide 3
Slide 4: Company Performance
Company Performance
Slide 5: Financial Performance vs. Objectives
Financial Performance vs. Objectives Reported YTD 2002 Objective EPS growth 83% 12%-15% Return on equity 15% 18%-20% Revenue growth 9% 8%
Slide 6: Update on 2002 Signposts
Slide 7: Marketing & Promotion Spending
Marketing & Promotion Spending (§ millions - GAAP Basis) 400 $350 as a ee wo ae $250 $200 + 10°01 20°01 39°01 40°01 1002 20°02 — TRS — Consolidated
Slide 8: OPEN
Slide 9: Brand Campaign
Brand Campaign
Slide 10: Marketing & Promotion Spending
Marketing & Promotion Spending (§ millions - GAAP Basis) 400 $350 as a ee wo ae $250 $200 + 10°01 20°01 3901 40°01 1002 20°02 — TRS — Consolidated
Slide 11: Investment Spending
Investment Spending 1999 2000 2001 @ Reeng/ Tech / Other AEFA 2002 Plan 2002 Forecast internet jmCard TT
Slide 12: Update on 2002 Signposts
Slide 13: AEFA Cash Sales
AEFA Cash Sales Year over Year Growth 20% 10% 6% 10% 0% 10% 20% 30% 40% 10°01 2001 3Q'01 4Q'01 10'02 2Q'02 —Total Cash Sales — Branded Advisor Channel 13
Slide 14: AEFA Investment Performance — Equity Funds
AEFA Investment Performance — Equity Funds Asset Weighted Basis Q2 2001 Q2 2002 % of Funds Above Median 34% 14
Slide 15: AEFA Owned Investment Portfolio
AEFA Owned Investment Portfolio 3/31/01 12/34/01 3/31/02 6/30/02 INVESTMENT SECURITIES BY PORTFOLIO: Individual Investment Grade Bonds 70% 78% 76% 76% Investment Grade Structured Securities 5% 4% 4% 4% Commercial Mortgage Loans 13% 12% 12% 12% Limited Partnerships* 1% 2% 3% 2% * Limited Partnership
Slide 16: Update on 2002 Signposts
Slide 17: WW Billed Business
WW Billed Business Year over Year Growth 10% 8% 6% 4% 2% 0% 2% 4% 6% Qt ‘01 Q2'01 G3 "01 a4 01 Qt 02 Q2'02 W
Slide 18: Billed Business Trends
Billed Business Trends Year Over Year Growth in Volume by Customer 20% 10% 0% 10% 20% 30% 10°01 20°01 30°01 40°01 Consumer SBS Corporate 10°02 International 20°02 18
Slide 19: Update on 2002 Signposts
Slide 20: Credit Quality
Credit Quality 20°01 30/01 40/01 10°02 20°02 Worldwide Charge Card Receivables (managed): Net Loss Ratio 0.42% 0.45% 0.47% 0.39% 0.40% U.S, Cardmember Loans (managed): Write-off Rates 5.7% 5.6% 5.9% 65% 6.2% 20
Slide 21: Charge Card Losses
Charge Card Losses 0.80% 0.90% 0.90% 0.70% 0.47% 0.51% 0.51% 0.50% 0.46 % 9 44% 0.36% 0.42% 9.40% | 1990 1991 1992 1993 1994 1995 1996 1997 1998 II 1999 2000 2001 YTD 2002 a
Slide 22: Credit Performance
Credit Performance Card Credit Reserve Position - Managed Basis 20°01 30/01 40/01 10°02 20°02 Worldwide Charge Card: Loss reserves as a % of Receivables 40% 41% 3.9% 43% 42% Coverage of Past Due Balances 138% 136% 136% 138% 164% U.S. Cardmember Loans: Loss reserves as a % of Loans 31% 3.3% 3.4% 3.7%
Slide 23: Company Performance
Company Performance
Slide 24: 1995 - 2002 Financial Trends
1995 - 2002 Financial Trends
Slide 25: Components of EPS Growth
Components of EPS Growth 1995 - 2000 Revenue Margin Lower Shares Improvement Outstanding 15% EPS Growth 2s
Slide 26: Components of EPS Growth Model
Components of EPS Growth Model 2002* vs 2001 Adjusted** 15% Interest Rate Benefit and Reengineering Revenue Margin Lower Shares EPS Growth Improvement Outstanding * Based on hypothetical EPS of $201 * Adjusted for high-yield losses, 9111 related costs and restructuring charges. 26
Slide 27: AXP EPS Growth Trajectory
AXP EPS Growth Trajectory 1993 - 2002 $2.75 $2.25 $175 $125 $75 + 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002* * Based on hypothetical EPS of $201 I 12-45% CAGR a
Slide 28: Capital Allocation and Growth Strategy
Capital Allocation and | Growth Strategy
Slide 29: Cost of Equity
Cost of Equity Risk-Free Rate Equity Risk Premium AXP- Specific Risk Premium COE 29
Slide 30: Cost of Equity and Shareholder Value
Cost of Equity and| Shareholder Value 22% 210% Creating Value Destroying Value ! Risk-Free Equity Risk AXP-Specific COE '98-'01 ROE Excess Rate Premium — Risk Premium Return (ROE-COE) 30
Slide 31: ROE Premium: 1995–2001
ROE Premium: 1995\— 2001 sige 25.3% 25.3% 0% spay, 7A 23.5% 23.2%" 19.5%* 12% COE ‘950 88878889000 "95-01 ROE Average * Adjusted for high-yield losses, 911 related costs and restructuring charges. 31
Slide 32: AXP Return on Managed Assets
AXP Return on Managed Assets vs. Financial Services Peers 1995 - 2001 Average 2.0% 1.0% 0.0% AIG SCH AXP COF_~—KRB cS MWD ONE JPM MER Source: Company reports Note: C is 1996-2001 average; JPH is 1998-2001 average 32
Slide 33: AXP Return on Equity
AXP Return on Equity vs. Financial Services Peers 1995 - 2001 Average 35% 30% 25% 20% 15% Ue +— Current Debt Rating 5% 0% AIG SCH AXP COF KRB C MWD ONE JPM MER ROA Leverage Source: Company reports Note: C is 1996-2001 average; JPH is 1998-2001 average 33
Slide 34: AXP Returns vs. Financial Services Peers
AXP Returns vs. Financial Services Peers ROE at Average Leverage (16.5x) 1995 - 2001 35% 30% 25% 20% 15% 10% w% 0% AIG SCH AXP COF ~~ KRB © MWD = ONE JPM Source: Company reports Note: C is 1996-2001 average; JPH is 1998-2001 average 34
Slide 35: AXP Excess Returns
AXP Excess Returns vs. Financial Services Peers Excess Returns at Average Leverage (ROE-COE) 1995 - 2001 2 20% 15% 10% A | | | iss % |r ES wb AIG = AXP SCH) CCOF_”~—sKRB @ ONE MWD JPM MER Source: Bloomberg and company reports Note: C is 1996-2004 average; JPM is 1998-2001 average. For all, COE is 20
Slide 36: AXP Excess Returns vs. Financial Services Peers
AXP Excess Returns vs. Financial Services Peers Actual Excess Returns (ROE-COE) 1995 - 2001 14% 12% 10% 8% 6% 4% 2% 0% ell 1995 1996 1997 1998 1999 2000 2001 = AP — Peer Average (Includes AXP) Note: is 1906-2001 average; JPH is 1998-2001 average. Forall, COE fs 202. 36
Slide 37: AXP Net Income Returned to Shareholders
AXP Net Income Returned to Shareholders (633) Net Income j= Return to SMt's (Dividends + Share Repurchases) 8 $2 st = fcumulati “ “ “ “ “ " " cumulative a 95 96 ‘97 98 99 ‘00 or cat Returned: 86% 78% 84% 107% 64% 62% 80% 79% 37
Slide 38: AXP Capital Generated Returned to Shareholders
AXP Capital Generated Returned to Shareholders ($B) Employee Plans/Other lm Net Income jm Return to S/H’s (Dividends + Share Purchases) $8 $2 “1 = Cumutati P P P "98* P " " umulative % of Capital ‘96 ‘97 ‘98° 99, ‘00 ‘0 ee Returned: 72% 69% 76% 83% 55% 56% 11% 68% * 1998 includes shares issued to Ni
Slide 39: AXP Returns vs. Financial Services Peers
AXP Returns vs. Financial Services Peers Cumulative Returns to Shareholders (1995-2001) 120% 80% ; | | | | | 0% | a | i JPM =«ONE «= AXP,-ssMWD = G=s«KRB MER «SCH COF_— AIG. m% of NI = % of Capital Generated! Source: Bloomberg and company reports Note: C is 1996-2001 average; JPH is 1993-2001 averag
Slide 40: AXP Returns and Growth vs. Financial Services Peers
AXP Returns and Growth vs. Financial Services Peers Cumulative Returns to Shareholders (1995-2001) 120% 40% 30% 20% E 3 3 me 2 is 3 40% | 10% 0% f | a | | o%, uM «ONE = AXP, «Ss MWD) G-=s« KREMER SCH COF_ AIG mm%S ofNI ss % of CapitalGenerated © -e- EPS CAGR (1995-2000) Source: Bloomberg and company
Slide 41: Excess Returns and Shareholder Value
Excess Returns and| Shareholder Value Price to Book OF T T T T 1 0.0 05 1.0 15 2.0 25 ROE / COE Note: Price to Book is most current data as of 741202. ROE 1 COE is most recent fiscal year data available. Data Source: Damodaran Online. Based on a regression of 4, 500+ companies weighted by market cap
Slide 42: Excess Returns and Shareholder Value
Excess Returns and| Shareholder Value AXP 2000 + oe AXP 2002 based on $30? share) Price to Book OF T T T T 1 0.0 05 1.0 15 2.0 25 ROE / COE Note: Price to Book is most current data as of 741202. ROE 1 COE is most recent fiscal year data available. Data Source: Damodaran Online. Based on a regression
Slide 43: Elements of Value Creation
Elements of Value Creation e Improve Operating Margins e Effectively Manage Capital e Grow the Business 43
Slide 44: Excess Returns and Shareholder Value Improving
Excess Returns and| Shareholder Value 7 6 5 3 4 2 2 Improving 33 Operating Margin = improves ROE 2 1 O+ T T T T i 0.0 05 1.0 15 20 25 ROE / COE Note: Price to Book is most current data as of 741202. ROE 1 COE is most recent fiscal year data available. Data Source: Damodaran Online. Based on a regres
Slide 45: Excess Returns and Shareholder Value Improving
Excess Returns and| Shareholder Value 7 6 5 3 4 2 2 Improving 33 ! Business Mix |e ele et i improves ROE 2 1 O+ T T T T i 0.0 05 1.0 15 20 25 ROE / COE Note: Price to Book is most current data as of 741202. ROE 1 COE is most recent fiscal year data available. Data Source: Damodaran Online. Based on
Slide 46: Excess Returns and Shareholder Value
Excess Returns and| Shareholder Value Growing the business at the same ROE increases Book Value, and therefore, Market Value OF T T T T 1 0.0 05 1.0 15 2.0 25 ROE / COE Note: Price to Book is most current data as of 741202. ROE 1 COE is most recent fiscal year data available. Data Source: Damodaran
Slide 47: Elements of Value Creation
of Value Creation e Effectively Manage Capital e Grow the Business
Slide 48: AXP Operating Expense Trend
AXP Operating Expense Trend Operating Expense / Revenue — Managed Basis* 64% el a ie itll ls 60% 58% 56% 54% T T T T T T T 1996 1997 1998 1999 2000 2001 2002" — OpexiRev (Including M&P) © — OpexiRev (Excluding M&P) * Total expenses excluding interest and TRSIAEB provision expenses, and adjusted for
Slide 49: Hypothetical AXP Operating Expense Trend
Hypothetical AXP Operating Expense Trend Operating Expense / Revenue - Managed Basis* 64% eval Ce ae eee ~— aoe 60% ore 58% 56% ae 84% “— T T T T T T T \ T 1995 «19971988 «= 1999 ©2000 ©2001 2002 2003" 2004" 205% ——OpexiRev (Including M&P) +—— OpexiRev (Excluding M&P) * Total expenses excluding inte
Slide 50: Internet Servicing Platforms
Internet Servicing Platforms e More than 80% of U.S. card transactions e-enabled e Over 8 million cards enrolled in “Manage Your Card Account” e To date, nearly 13 billion MR points redeemed online in U.S. e In 2001, 17% of U.S. consumer cards acquired online 50
Slide 51: Internet Cost Savings
Internet Cost Savings (US., Indexed) Comparison of Offline to Online Unit Cost 1 Offline * © Online Electronic Card Customer MR Payment Acquisitions Servicing"* Redemptions “Indexed to 100; based on 10 W2 results * Includes phone, fax, ACH and computer. Offline represents rep handled servicing, a
Slide 52: Internet Servicing Platforms: Manage Your Card Account
Internet Servicing Platforms: “WMlanage Your Card| Account” U.S. MYCA Customer Usage Global Enrollments Phone to Web Servicing (Wilions) Se a em ie peal at OAs actions Volume Growth Migrated Online in1Q°02 1002s. 10°01 Pay by PC Enrollment 34% 103% MR Redemptions 32% AR MR Point Reinstatement NA MR
Slide 53: Elements of Value Creation
of Value Creation e Improve Operating Margins e Grow the Business
Slide 54: AXP Portfolio: Growth and Profitability
AXP Portfolio: Growth and Profitability Cop, 2000 Results all Sage Paring wg Charge us. © °° ta 4 ey in oh a £ Card fo! rep Tool os GCs Mgmt 5 eH des © Ets = Us ® E ses An # in °o ) Fixed Lending E Annuity byrne 212% COE 2 AEBPFS: Business @ e Travel” Heft Tost Cette Toa @ ® Ae re * Adjusted for the
Slide 55: U.S. Consumer and Small Business Services
U.S. Consumer and|Small Business Services Portfolio: Growth and Profitability 2000 Results us us On: @x : @. @.:: us Constner i ces ending < 5 E 212% COE @ 13% Net Income Growth 55
Slide 56: Membership Rewards Metrics
Membership Rewards® Metrics U.S. Membership Rewards Enrollees, 2001 e Overall, Average Spending Nearly 4x Higher e 75% Lower Attrition e 61% Lower Credit Loss Rate e Faster Speed of Pay e Enrollee Profits are 6x Greater vs. Non-Enrollees 56
Slide 57: Cross-Selling Success / Opportunities — Charge
Cross-Selling Success / Opportunities — Charge Penetration of U.S. Charge Cardmember Base, 2001 50% 40% 30% 20% 10% 0% WREnrollee CreditCard ——_Enrolledin Have Enrolled in Fee Relafionship _Lendingon ‘Supplemental Service Charge Card 7
Slide 58: Upselling Premium Products
Upselling Premium Products Average U.S. Consumer Cardmember Spend * 2001 2,300 240 150 100** ae . Personal Gold GoldRewards Platinum Centurion Plus * Average spend per CIF. * Indexed to 100.
Slide 59: Customer Focused Sales Revenue
Customer Focused Sales Revenue U.S. Consumer (MM) $120 $20 $0 1997 1998 1999 2000 2001 59
Slide 60: Customer Focused Sales
Customer Focused Sales U.S. Consumer, 2001 % of Total Acquisitions by Channel 100% 80% 60% 40% 20% Platinum Delta Lending Charge Airflight Charge SkyMiles on Charge Additional Baggage Upgrades Conversions Cards Insurance MCFS All Other Channels * * Includes direct mal, outbound telemarketing and ema
Slide 61: AEFA Portfolio: Growth and Profitability
AEFA Portfolio: Growth and) Profitability 2000 Results Yavible Annuity. . faset fig 2 Too! x ) Ea g 5 Fixed E eo 6... 12% COE ao Crtiicates 13% Net Income Growth
Slide 62: AEFA Advantages: Components
AEFA Advantages: Components e Long-term Planning Perspective ® Goal Driven e Multiple Product Relationships : e Products for Customer’s Lifecycle e Manufacturing Improves Profitability 62
Slide 63: Power of Financial Planning Model
Power of Financial|Planning Model 2000 With Plan Accounts V7 Cash Invested 2.4x (Index) 10-year Retention 72% NPV (Index) 2.4x Without Plan 27 1x 39% 1x 63
Slide 64: AEFA Advantages: Retention
AEFA Advantages: Retention 2001 99% of advisors with 5+ years of service atoton 94% of total clients over 1 year 87% of average net assets per year 64
Slide 65: Profitability of Multiple Relationships
Profitability of Multiple Relationships Estimated Annual Net Income per Customer - U.S., 2001 30x 1x Card Card & Fully Integrated Only* Mutual Fund Advisor Relationship * Indexed to 100. 65
Slide 66: Global Corporate Services Portfolio: Growth and Profitability
Global Corporate Services Portfolio: Growth and Profitability 2000 Results puhing Oe e Orn te ei ©. quity Retum on E 12% COE Business Travel’ © 13% * Adjusted for the Havas gain. Net Income Growth
Slide 67: Global Corporate Services
Global Corporate Services e 89% of top 50 accounts use two or more products e 74% of global travel sales are booked on the corporate card e 18% of U.S. Large Market clients use Corporate Purchasing Card 67
Slide 68: Middle Market / Purchasing Card Opportunity
Middle Market / Purchasing Card Opportunity 2000 PTI*/ Billings 155 US. US. U.S. Corporate" International Large Middle Purchasing Corporate Market” Market Card Card CAGR of AXP Billings (1985-2000) 10% 18% 63% 17% Estimated Penetration of All Corporate Plastic Spending™ 15-85% <30% 5% <50% “Includes
Slide 69: Elements of Value Creation
of Value Creation e Improve Operating Margins e Effectively Manage Capital
Slide 70: Financial Community Presentation
Financial Community Presentation — Ken Chenault July 31, 2002
Slide 71: Components of Market Value
Components of Market Value ($B) 1995 2000 June 30, 2002 Total Market Value $20.0 $72.8 $48.7 1 Growth Value © Annuity Value" (no growth) 1 Book Value* * Shareholders’ equity excluding FAS 115 &FAS 133 * Net income capitalized in perpetuity at the cost of equity n
Slide 72: Confidence Factors
Confidence Factors Power Alleys Global Payments Retail Financial Services 2
Slide 73: Confidence Factors: Capabilities and Assets
Confidence Facto 7 | Capabilities and Assets Reengineering Expertise Customer Service Ethic Partnership Skills Internet Platforms Brand Rewards Expertise Global Presence Customer Base Closed Loop Network Marketing Skills 2B
Slide 74: Confidence Factors: Balanced Growth
Confidence Fact Balanced Growth cee 4
Slide 75: Confidence Factors: Organic Growth
Confidence Factors Organic Growth 8
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Slide 77: Virtuous Payments Cycle
Virtuous Paymel Merchant Acceptance Cardmember Demand 7
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Slide 79: Global Network Services
Global Network Services entourage CIBC 9
Slide 80: Small Business Network
SMALL BUSINESS NETWORK” OPEN To IDEAS. OPEN TO OPTIONS. OPEN 24777365. OPEN FOR You. 9 connect tt the @ Access Find In Pay By 80
Slide 81: Platinum Financial Services
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Slide 84: Long-Term Growth Factors
Slide 85: Long Term Financial Objectives
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