American Express 2005 Annual Report Download - page 56

Glossary of Selected Terminology
Asset securitizations — Asset securitization involves
the transfer and sale of receivables or loans to a special
purpose entity, a separate legal entity, created for the
securitization activity, typically a trust. The trust, in
turn, issues securities, commonly referred to as
asset-backed securities that are collateralized by the
transferred receivables or loans. The trust utilizes the
proceeds from the sale of such securities to pay the
purchase price for receivables or loans that were sold
into the trust.
Average discount rate — Computed as follows: Discount
revenue from all card spending (proprietary and Global
Network Services) at merchants divided by all billed
business (proprietary and Global Network Services)
generating discount revenue at such merchants. Only
merchants acquired by the Company are included in the
computation. Discount rates have been restated on a his-
torical basis from those previously disclosed, primarily
to retain in the computation the Global Network Ser-
vices partner portion of the discount revenue, as well as
the Company’s portion of discount revenue.
Basic cards-in-force — Represents the number of cards
issued and outstanding to the primary account owners
and does not include additional supplemental cards
issued on such accounts.
Billed business — Represents the dollar amount of
charges on all American Express cards; also referred to
as spend or charge volume. Proprietary billed business
includes charges made on the Company’s proprietary
cards-in-force, cash advances on proprietary cards and
certain insurance fees charged on proprietary cards
while non-proprietary billed business represents the
charges through the Company’s global network on cards
issued by the Company’s network partners.
Cardmember — The individual holder of an issued
American Express branded charge or credit card.
Cardmember lending net finance charge revenue — Repre-
sents the net revenue earned on outstanding cardmember
loans. Cardmember lending finance charges are assessed
using the average daily balance method. They are recog-
nized based upon the principal amount outstanding in
accordance with the terms of the applicable account
agreement until the outstanding balance is paid or
written-off. Cardmember lending finance charges are pre-
sented net of the interest expense incurred by the Com-
pany to finance lending receivables.
Cardmember loans — Represents the outstanding
amount due from cardmembers for charges made on
their American Express credit cards, as well as any inter-
est charges and card-related fees due from the
cardmember. Cardmember loans also include balances
with extended payment terms on certain charge
card products.
Cardmember receivables — Represents the outstanding
amount due from cardmembers for charges made on
their American Express charge cards as well as any
card-related fees.
Cards-in-force — Represents the number of cards that
are issued and outstanding. Total consumer cards-in-
force includes basic cards issued to the primary account
owner and any supplemental cards which represent
additional cards issued on that account. Total small
business and corporate cards-in-force include basic
cards issued to employee cardmembers. Proprietary
cards-in-force represent card products where the Com-
pany owns the cardmember relationship including card
issuance, billing and credit management and strategic
plans such as marketing, promotion and development
of card products and offerings. Proprietary cards-in-
force include co-brand and affinity cards. For non-
proprietary cards-in-force, the Company maintains the
responsibility to acquire and service merchants that
accept the Company’s cards and the cardmember rela-
tionship is owned by the Company’s network partners
that issue the cards. Most of the Company’s network
partners provide cards-in-force data to the Company on
a one-month lag basis.
Charge cards — Represents cards that carry no pre-set
spending limits and are primarily designed as a method
of payment and not as a means of financing purchases
of goods or services. Cardmembers generally must pay
the full amount billed each month. No finance charges
are assessed on charge cards.
Credit cards — Represents cards that have a range
of revolving payment terms, grace periods and rate and
fee structures.
Discount revenue — Represents revenue earned from fees
charged to merchants with whom the Company has
entered into a card acceptance agreement for processing
cardmember transactions. The discount fee is generally
deducted from the Company’s payment reimbursing
the merchant.
Financial Review
AXP / AR.2005
[54 ]