American Express 2005 Annual Report Download - page 57

Interest-only strip — Interest-only strips are generated
from U.S. Card Services’ securitization activity and are
a form of retained interest held by the Company in the
securitization. This financial instrument represents
the present value of estimated future excess spread
expected to be generated by the securitized assets over
the estimated life of those assets. Excess spread is the net
positive cash flow from interest and fee collections allo-
cated to the third-party investors’ interests in the secu-
ritization after deducting the interest paid on the inves-
tor certificates, credit losses, contractual servicing fees
and other expenses.
Loss reserves as a percentage of loans — Represents the
amount of loss reserves expressed as a percentage of the
outstanding loan balance.
Loss reserves as a percentage of past due accounts — Rep-
resents the reserve coverage of past due accounts.
Net card fees — Represents the card membership fees
earned during the period. These fees are recognized as
revenue over the card membership period (typically one
year) covered by the card fee, net of provision for pro-
jected refunds of card fees for cancellation of card mem-
bership. Similarly, card acquisition costs are deferred
and amortized into operating expenses over the card
membership period covered by the card fee.
Net finance charge revenue/average loans — Represents
net finance charge revenue divided by average loans for
the period.
Net loss ratio — Represents the ratio of write-offs, net of
recoveries on cardmember receivables expressed as a
percentage of the total charge card volume.
Net write-off rate — Represents the amount of loans
written-off, net of recoveries as a percentage of the
average loan balance during the period.
Past due loans as a percentage of total loans — Represents
the percentage of loans that are 30 days or more past due
compared to the total amount of loans outstanding.
Return on average total shareholders’ equity — Computed
on a trailing 12-month basis using total shareholders’
equity as included in the Consolidated Financial State-
ments prepared in accordance with U.S. GAAP.
Return on segment capital — Computed on a trailing
12-month basis using equity capital allocated to seg-
ments based upon specific business operational needs,
risk measures and regulatory capital requirements.
Securitization income, net — Net securitization income
includes non-credit provision components of the net
gains and charges from securitization activities, impair-
ment charges, if any, of the related interest-only strip,
excess spread related to securitized cardmember loans,
net finance charge revenue on retained interests in secu-
ritized cardmember loans and servicing income, net of
related discounts or fees. Excess spread is the net posi-
tive cash flow from interest and fee collections allocated
to the third-party investors’ interests in the securitiza-
tion after deducting the interest paid on the investor
certificates, credit losses, contractual servicing fees
and other expenses. Excess spread is recognized as it
is earned.
Stored value and prepaid products — Include Travelers
Cheques and other prepaid products such as gift
cheques and cards as well as reloadable Travelers
Cheque cards. These products are sold as safe and
convenient alternatives to currency and represent pre-
paid financial instruments for the holders to use for pur-
chasing goods and services.
Travel sales — Represents the total dollar amount of travel
transaction volume for airline, hotel, car rental and other
travel arrangements made for consumers and corporate
clients. The Company earns revenue on these transactions
by charging a transaction or management fee.
Forward-Looking Statements
This report includes forward-looking statements, which
are subject to risks and uncertainties. The words
“believe,” “expect,” “anticipate,” “optimistic,” “intend,”
“plan,” “aim,” “will,” “may,” “should,” “could,” “would,”
“likely,” and similar expressions are intended to identify
forward-looking statements. Readers are cautioned not
to place undue reliance on these forward-looking state-
ments, which speak only as of the date on which they
are made. The Company undertakes no obligation to
update or revise any forward-looking statements. Fac-
tors that could cause actual results to differ materially
from these forward-looking statements include, but are
not limited to, the following: the Company’s ability to
generate sufficient net income to achieve a return on
equity on a GAAP basis of 28 percent to 30 percent; the
Company’s ability to grow its business and meet or
exceed its return on shareholders’ equity target by rein-
vesting approximately 35 percent of annually-generated
capital, and returning approximately 65 percent of such
capital to shareholders, over time, which will depend on
Financial Review
AXP / AR.2005
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