American Express 2005 Annual Report Download - page 34

and resolution of IRS audits of previous years’ tax
returns, a $123 million ($80 million after-tax) increase
in the provision for losses recorded in the fourth quarter
2005 reflecting substantially higher losses related to
increased bankruptcy filings resulting from the
October 17, 2005 change in bankruptcy legislation, a
$113 million ($73 million after-tax) benefit from the
recovery of September 11, 2001 related insurance
claims, and a $49 million ($32 million after-tax) provi-
sion to reflect the estimated costs related to Hurricane
Katrina. 2004 results from continuing operations
included a $117 million ($76 million after-tax) net gain
on the fourth quarter sale of the equipment leasing
product line, a charge of $115 million ($75 million after-
tax) reflecting a reconciliation of securitization-related
cardmember loans for balances accumulated over the
prior five-year period as a result of a computational
error, $99 million ($64 million after-tax) in restructur-
ing charges and a $60 million ($39 million after-tax)
benefit for a reduction in merchant-related reserves.
Revenues
Consolidated revenues for 2005 were $24.3 billion, up
10 percent from $22.0 billion in 2004. Revenues
increased due to higher discount revenues, increased
cardmember lending net finance charge revenue and
greater securitization income. Consolidated revenues
for 2004 were 12 percent higher than 2003 due prima-
rily to higher discount revenues as well as increased
travel and other commissions and fees.
Discount revenue for 2005 rose 14 percent to $11.7 bil-
lion as compared to 2004 as a result of a 16 percent
increase in worldwide billed business, a 10 percent
increase in average spending per proprietary basic card
and 9 percent growth in cards-in-force, offset in part by
a lower average discount rate. Selective repricing initia-
tives, continued changes in the mix of business and
volume-related pricing discounts will likely continue to
result in some erosion of the average discount rate over
time. U.S. billed business was up 16 percent reflecting
growth of 15 percent within the Company’s consumer
card business, a 20 percent increase in small business
spending and a 11 percent improvement in Corporate
Services volumes. Excluding the impact of foreign
exchange translation, total billed business outside the
U.S. increased 15 percent reflecting double-digit propri-
etary growth in all regions, with the largest increases in
Canada and Latin America. Additionally, within the
proprietary business, billed business outside the U.S.
reflected 13 percent growth in consumer and small busi-
ness spending, as well as a 14 percent increase in
Corporate Services volumes. Billed business related
to Global Network Services increased 36 percent
during 2005.
The increase in overall cards-in-force reflected both pro-
prietary and Global Network Services activities and
strong average customer retention levels. In the U.S. and
outside the U.S., 3.1 million and 2.5 million cards were
added during 2005, respectively. The increase in average
spending per proprietary basic card reflected a 9 percent
increase in the U.S. and a 13 percent increase outside
the U.S. Discount revenue rose 17 percent to $10.2 bil-
lion during 2004 as a result of an 18 percent increase
in billed business, from both growth in cards-in-force
and higher average cardmember spending per propri-
etary basic card, partially offset by a lower discount rate.
Cardmember lending net finance charge revenue of $2.6
billion in 2005 rose 16 percent, reflecting growth in
average worldwide lending balances on an owned basis
and a higher portfolio yield. During 2004, cardmember
lending net finance charge revenue increased 9 percent
to $2.2 billion as the 15 percent growth in the average
balance of the owned lending portfolio was partially off-
set by a lower average yield.
Securitization income, net increased 11 percent to $1.3
billion in 2005 on a greater average balance of securi-
tized loans, a higher trust portfolio yield and a decrease
in the trust portfolio write-offs, partially offset by greater
interest expense due to a higher coupon rate paid to cer-
tificate holders and an increase in the payment speed of
trust assets. Securitization income, net of $1.1 billion in
2004 was consistent with 2003.
Expenses
Consolidated expenses for 2005 were $20.0 billion, up
10 percent from $18.1 billion in 2004. The increase in
2005 was primarily driven by higher marketing, promo-
tion, rewards and cardmember services expenses,
greater provisions for losses and benefits, and increased
expenses for human resources, partially offset by lower
other expenses. Consolidated expenses in 2005
included $286 million of reengineering costs reflecting
$164 million of restructuring related severance costs,
principally within the business travel, international
operations, and finance and technology areas. Severance
costs are included in human resources expenses.
Restructuring costs also included $29 million related to
other exit costs and are included in other expenses. Con-
solidated expenses in 2005 also included a $49 million
provision to reflect the estimated costs related to Hur-
ricane Katrina, which was included in provisions for
Financial Review
AXP / AR.2005
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